Practice Quiz

MTEL Business Practice Exam

Category - Business Operations

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A business that makes only one type of product sold 10,000 units at $50/unit and made a profit of $100,000 last year. The manager is forecasting that another 12,000 units will be sold this year. Assuming that the unit price, the variable cost of $20/unit, and the fixed costs remain at the same level, what will be the total profit if sales increase to 12,000 units?
  1. $104,000
  2. $112,000
  3. $160,000
  4. $200,000
Explanation
Correct Response: C. The 10,000 units at $50/unit profit of $100,000 will remain the same, and the additional 2,000 units at $30/unit profit is $60,000, which gives a total profit of $160,000. Response A results by finding the increase in sales as (10,000 units/50) = 200 units, multiplying this by $20/unit, and adding the result to the $100,000 profit. Response B results from adding 12,000 to 100,000. The value $200,000 is the variable cost, which is found by ($20/unit)(10,000 units) (D). 
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