SAVANNAH DESIGNS CVP PROBLEM

Savannah owns a company called Savannah Designs, which makes bracelets with semiprecious stones and sells them at a local market. Savannah currently sells her bracelets for $175 each and expects to sell 1,000 bracelets per year at this price. Her variable costs per bracelet are the metal and stones (approximately $80 per bracelet) and packaging ($5 per bracelet). She has total annual fixed costs of $9,000, comprised of $8,500 for space at the market and $500 depreciation on display cases and signage.

Savannah estimates that if she increases her selling price by 20%, she will sell 25% fewer bracelets. If she wants to maximize expected profit, should Savannah continue to price at $175 or should she increase her selling price by 20%?

Question 8 options:

	Savannah should keep her selling price at $175.
	Savannah should increase her selling price by 20%.