Warner Clothing is considering the introduction of a new baseball cap for sales by local vendors. The company has collected the following price and cost characteristics:

Sales price	$	15	per unit
Variable costs		3	per unit
Fixed costs		42,000	per month

Assume that the company plans to sell 5,000 units per month. Consider requirements (b), (c), and (d) independently of each other.

Required:

a. What will be the operating profit?

Operating profit

$18,000

b.

What is the impact on operating profit if the sales price decreases by 10 percent? Increases by 20 percent?

Sales price decreases by 10 percent:	Operating profit	decreases	by	????????
Sales price increases by 20 percent:	Operating profit	increases	by	????????

c. What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent?

Variable costs per unit decrease by 10 percent:	Operating profit	increases	by	??????????
Variable costs per unit increase by 20 percent:	Operating profit	decreases	by	??????????

d. Suppose that fixed costs for the year are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much?

Operating profit

increases

by

???????