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Calculation Of Impact Of Decrease In Selling Price

Question

Alpha Company, which sells specially designed envelopes has been in the industry for almost then years. The company’s profit and loss account for the month of December 2012 is given below:

Alpha Company
Profit and Loss Account for December 2012
                                                  €
Sales (21,500 units)                1720,000
Less: Variable Costs                   967500
                                              ________
Contribution                                752500
Less: Fixed Costs                         780000
                                               ________
Net Loss                                        27500

Referring to the original data, the sales manager proposes that a 10% reduction in the selling price combined with an increase of €120,000 in the monthly advertising expenses will double the sales quantity volume. Prepare a revised profit and loss account to show the effect of the new proposal.

Summary

The question belongs to Finance and it discusses about a scenario of a business which yields a net loss. A proposal from the sales manager about reducing the selling price and increasing monthly advertising expenses’ effect on sales has been project in the solution.

Total Word Count 40

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