Assume that Cane expects to produce and sell 93,000 Betas during the current year. One of Cane’s sales representatives has found a new customer that is willing to buy 4,000 additional Betas for a price of $42 per unit. If Cane accepts the customer’s offer, how much will its profits increase or decrease?

Note that the total cost per unit of Betas is $47.

decrease by -$4,375,000

Explanation:

Since Cane expects to produce and sell 93,000 Betas during the current year, additional 4000 units would make the total cost be

93,000 + 4,000 = 97,000 units

97,000 x $87 = $8,439,000

To find the decrease or increase in profit, we multiply the total sales volume by the price willing to be paid by the new customer

97,000 x $42 = $4,074,000 (This value is a great loss of profit). By substracting the total cost by amount paid we see a decrease of $8,439,000-$4,074,000= $4,375,000.