Answer the Following Questions Using the Information Below:
Velim Electronics

question 170

Multiple Choice

Answer the following questions using the information below:
Velim Electronics manufactures electric shavers and is considering decreasing the price by $2 a unit for the coming year. With a $2 price decrease, the unit demand is expected to increase by 25%, and a high volume materials discount is expected to decrease the variable costs per unit by $1 per unit.
$\begin{array}{lrr}&\text { Currently }&\text { Projected }\\\text { Demand } & 10,000 \text { units } & 12,500 \text { units } \\\text { Selling price } & \$ 51 & \$ 49 \\\text { Variable costs per unit } & \$ 45 & \$ 44\end{array}$
-Einstein Motors,has a capacity to produce 25,000 electric cars.Due to a temporary subsidy announced,there is a sudden increase in demand.Einstein decides to adopt peak-load pricing and charge a premium of 25% over its normal selling price of $2,000.It has already accepted orders for 20,000 units at normal selling price.What is the total contribution to the company on sale of additional 5,000 units if the variable cost per unit is $900?

• A) $10,000,000
• B) $8,000,000
• C) $4,500,000
• D) $4,000,000

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Definitions:

Interest Rate

The percentage of an amount of money charged for its use per period of time, often annually.

Present Value

The present-day value of a future amount of money or series of cash flows, based on a given rate of return.

Interest Rate

Lenders impose a charge, as a percentage of the principal, on borrowers for the use of their assets.

Present Value

The value today of a future money sum or sequence of cash flows, based on a specific interest rate.