Maize Plastics manufactures and sells bottles per day. Fixed Costs are $30,000 and the variable costs for manufacturing 50 bottles are $10,000. Each bottle is sold for $1,000. How would the daily profit be affected if the daily volume of sales drop by 10%? a. profits are reduced by $4,000
b. profits are reduced by $1,000
c. profits are reduced by $5,000
d. profits are reduced by $6,000

a. profits are reduced by $4,000

Explanation:

Calculation to determine How would the daily profit be affected if the daily volume of sales drop by 10%

First step is to calculate the Variable cost per unit

Variable cost per unit = $10,000 / 50

Variable cost per unit = $200

Second step is to calculate the Profit for 50 bottles

Profit for 50 bottles = ($1,000 × 50) - ($30,000 + $10,000)

Profit for 50 bottles = $10,000

Third step is to calculate the Sales after 10% drop

Sales after 10% drop = 50 × (1 - 0.10)

Sales after 10% drop= 45

Fourth step is to calculate the Profit for 45 bottles

Profit for 45 bottles = ($1,000 × 45) - ($30,000 + (45 × 200))

Profit for 45 bottles= $6,000

Now let determine the Change in profit

Change in profit = $10,000 - $6,000

Change in profit= $4,000

Therefore How would the daily profit be affected if the daily volume of sales drop by 10% is that the PROFITS ARE REDUCED BY $4,000

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