(Sales mix decision) One of the products produced and sold by Denver Chemical Company is a 90-quart cold drink cooler. The company’s projections for this product for 1999 follow.

a. Compute the projected pretax profit to be earned on the cooler during 1999.

b. Corporate management estimates that unit volume could be increased by 20 percent if the sales price were decreased by 10 percent. How would such a change affect the profit level projected in part a?

c. Rather than cutting the sales price, management is considering holding the sales price at the projected level and increasing advertising by $200,000. Such a change would increase volume by 25 percent. How would the level of profit under this alternative compare with the profit projected in part a?LO1

Transcribed Image Text:

Sales price per unit Variable production costs $72 $42 Variable selling costs $8 Fixed production costs $450,000 Fixed selling and administration costs $150,000 Projected volume 90,000 units