3. ABC Company manufactures the product XE-17. The product is sold at a unit price of $70. Variable expenses are $13.50 per unit and fixed expenses are $220,000 per year. Required :

d. The manager of ABC company predicts that by spending an additional $80,000 per year on advertising and using higher quality raw material (which will in turn increase the raw material cost per unit by $3), and increasing selling price per unit by 2% (to compensate for the increased costs), unit sales will increase by two- thirds of the current sales units. Should the company go with the managers proposed plan? Explain your answer. (Assume that in the current year, the company sold 5,600 units of XE-17) (8 marks)

e. (Refer to question no. d). Assume that the company went with the managers plan, however, the predictions were not correct and the demand for XE-17 decreased by 4,000 units from the estimated units (from question no. d) as selling price per unit was raised by 2%. Now the manager is estimating that by changing the selling price per unit, the current net profit amount can be conveniently maintained. Calculate what should be the new selling price per unit (calculate the approximated value) in order to maintain the net profit that the company is making now after going with the managers plan from information number . d (10 marks)