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When making the determination of whether or not a selling price should be increased there are many different aspects to take into consideration. Paulsen Company sells only one product. The regular selling price is $50. Variable costs are 70% of this selling price, and fixed costs are $7,500 per month.
Management decides to increase the selling price from $50 to $55 per unit. Assume that the cost of the product and the fixed operating expenses are not changed by this pricing decision.
Question 1: What cost-volume relationships should Paulsen take into consideration for the original price and the proposed new selling price?
Question 2: Discuss the non-monetary factors that should be taken into consideration before raising a selling price.
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