3-11 CVP analysis (LO 3)

Carr Orthotics Company distributes a specialized ankle support that sells for $30. The companys variable costs are $18 per unit; fixed costs total $360,000 per year.

Required

a. If sales increase by $39,000 per year, by how much should operating income increase?

b. Last year, Carr sold 32,000 ankle supports. The companys marketing manager is convinced that a 10% reduction in the sales price, combined with a $50,000 increase in advertising, will result in a 25% increase in sales volume over last year. Should Carr implement the price reduction? Why or why not?