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Selling

Price

Estimated

Unit Sales Sales

Variable

Cost

Fixed

Expenses

Net

Operating

Income

\$25.00 50,000 \$1,250,000 \$300,000 \$960,000 \$(10,000)

\$23.75 54,000 \$1,282,500 \$324,000 \$960,000 \$ (1,500)

\$22.56 58,320 ? ? ? ?

\$21.43 62,986 ? ? ? ?

\$20.36 68,025 ? ? ? ?

\$19.34 73,467 ? ? ? ?

\$18.37 79,344 ? ? ? ?

\$17.45 85,692 ? ? ? ?

\$16.58 92,547 ? ? ? ?

\$15.75 99,951 ? ? ? ?

2. Using the data from the table, construct a chart that shows the net operating income as a function

of the selling price. Put the selling price on the X-axis and the net operating income on the

Y-axis. Using the chart, determine the approximate selling price at which net operating income

is maximized.

3. Compute the price elasticity of demand for the SpamBlocker software. Based on this calculation,

what is the profi t-maximizing price?

4. The owners have invested \$2,000,000 in the company and feel that they should be earning at

least 2% per month on these funds. If the absorption costing approach to pricing were used,

what would be the target selling price based on the current sales of 50,000 units? What do you

think would happen to the net operating income of the company if this price were charged?