Reference no: EM132565649

Question 1: MHM produces lawn chairs which it sells for $40 each. Its total fixed costs are $2,800,000 per year, its variable costs are $18per lawn chair, and its corporate tax rate is 25%. In a strong economy, it expects to sell 200,000 lawn chairs whereas in a weake conomy, it will only 150,000 chairs. How much lower will MHM's profits be in a weak economy compared to a strong economy?

                                                Strong Economy                    Weak Economy

Sale                                s $8,000,000.00                  $6,000,000.00

Fixed Cost                         $(2,800,000.00)                $(2,800,000.00)

Variable Costs                     $(3,600,000.00)                  $(2,700,000.00)

Gross Profit                        $1,600,000.00                         $500,000.00

Taxes                                 $400,000.00                          $125,000.00

Profit                                    $1,200,000.00                  $375,000.00

MHM's profit will be $825,000.00 in a weak economy compared to a strong economy