Question: In a normal year Wilson Industries has 24 000 000 of fixed

In a normal year, Wilson Industries has $24,000,000 of fixed manufacturing costs and produces 60,000 units. In the current year, demand for its product has decreased, and it appears that the company will be able to sell only 50,000 units. Senior managers are concerned, in part because their bonuses are tied to reported profit. In light of this, they are considering keeping production at 60,000 units.

Write a paragraph explaining why increasing production beyond the quantity needed for current sales will increase profit, and calculate the impact of producing 10,000 “extra” units. Is the managers’ proposed action in the best interest of shareholders?

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  • CreatedSeptember 18, 2013
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