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Profit effect of price change
The accountants at French Perfumery decided to increase the price of a scent called Breezy by 11 %, from $ 6.84 per bottle to $ 7.59 . French's accountants expect the 11 % price increase to reduce unit sales by 23 %. Current sales are 228,000 bottles, and total variable costs are $ 912,000 .
Required
Question 1: Estimate the pretax profit effect of the price change, assuming no effect on the variable cost rate, on total fixed costs, or on sales of other products.
Question 2: Calculate the contribution margin at the old and new prices and volumes.
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