Woodinville Cement Company uses a process costing system. In 2011, the company produced and sold 100,000 bags of cement and incurred the following costs:
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The current selling price is $4 per unit, and the profit for 2011 was ($4 x 100,000) - $325,000 = $75,000.Sales projections for 2012 at the current price look flat, but the sales manager believes that if the sales price is reduced to $3.75, sales volume would increase by 12,000 units. Assume that direct material and direct labor are variable costs and that manufacturing costs are primarily fixed. Should Woodinville Cement lower the price?