Silencer Company sells a single product, mufflers for leaf blowers. The company’s profit computation for last year is shown here:

Silencer has decided to increase the price of its product to $30 per muffler. The company believes that if it increases its fixed advertising (selling) cost by $3,400, sales volume next year will be 1,800 mufflers. Variable cost per muffler will be unchanged.
Required: (1) Using the above income statement format, show the computation of expected profit for Silencer’s operations next year.
(2) How many mufflers would Silencer have to sell to earn as much profit next year as it did last year?
(3) Do you agree with Silencer’s decision? Explain why or why not.

Transcribed Image Text:

Sales revenue (2,000 units @ $25). Less variable costs....... Contribution margin. Less fixed costs...... Profit...... --- $50,000 (16,000) $34,000 (22,000) $12,000