Silencer Company sells a single product, mufflers for leaf blowers. The business' profit calculation for last year is shown here:

Silencer has decided to increase the price of its product to \(\$ 30\) per muffler. The business believes that if it increases its fixed advertising (selling) cost by \(\$ 3400\), sales volume next year will be 1800 mufflers. Variable cost per muffler will be unchanged.
Required:
a Using the above income statement format, show the calculation of expected profit for Silencer's operations next year.
b How many mufflers would Silencer have to sell to earn as much profit next year as it did last year?
c Do you agree with Silencer's decision? Explain why or why not.

Transcribed Image Text:

Sales revenue (2000 units @ $25) Less variable costs Contribution margin Less fixed costs Profit $ 50 000 (20 000) $ 30 000 (22 000) $ 8000