Flash City Inc. manufactures small flash drives and is considering raising the price by 75 cents a unit for the coming year. With a 75−cent price increase, demand is expected to fall by 7,000 units. Current Projected Demand 78,000 units 71,000 units Selling price $8.50 $9.25 Incremental cost per unit $5.80 $5.80 Would you recommend the 75−cent price increase?

Flash City Inc is a company manufacturing small flash drives

Current Situation:

Demand = 78,000 Units

Selling price per unit = $8.50

Cost per unit = $5.80

Operating Profit = 78,000 * ($8.50 – $5.80)

Operating Profit = 78,000 * $2.70

Operating Profit = $210,600

Projected Situation:

Demand = 71,000 Units

Selling price per unit = $9.25

Cost per unit = $5.80

Expected Operating Profit = 71,000 * (9.25 – 5.80)

Expected Operating Profit = 71,000 * 3.45

Expected Operating Profit = $244,950

Recommendation: If the selling price price per unit is increase by 0.75 cent, the Operating Profit to realize on manufacturing of the small flash drive will increase by $34,350 ($244,950  - $210,600) although such increment may have an effect of decrease in demand of the Flash drive in market due to increase in price.

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