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Edison's Lights makes light bulbs. The company is currently producing well below its full capacity. Lamp Land has approached Edison's Lights with an offer to buy 20,000 light bulbs at $0.75 each. Edison;s Lights sells its light bulbs wholesale for $0.85 each; the average cost per unit is $0.83, of which $0.12 is fixed costs. If Edison's Lights were to accept Lamp Land's offer, what would be the increase in Edison's Lights' operating profits?

Respuesta :

Zviko

Answer:

the increase in Edison's Lights' operating profits would be  $400

Explanation:

Analysis of the effects of Accepting Lamp Land's offer

Sales (20,000 x $0.75)                                   $15,000

Less Incremental Costs :

Variable Cost (20,000 x $0.73)                     ($14,600)

Operating Profit                                                    $400

thus

If Edison's Lights were to accept Lamp Land's offer, the increase in Edison's Lights' operating profits would be  $400

Parrain

Based on the various costs to make the light bulb, Edison's lights would see an increase in operating profits of $800.

How would Edison's Lights see this profit?

The fixed costs would be the same throughout production so should be deducted:
= Average cost - fixed cost

= 0.83 - 0.12

= $0.71

The variable cost of making the bulb is $0.71 which means that the profit made on every bulb if sold at $0.75 would be:

= 0.75 - 0.71

= $0.04

The total profit would be:

= 20,000 bulbs x 0.04

= $800

Find out more on operating profits at https://brainly.com/question/14366117.

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