G Suppose that if GSI drops the price on the Glucoscan 3000 immediately, it can increase sales over the next year by 30% to 130,000 units. Also suppose that for each Glucoscan monitor sold, GSI expects additional sales of $100 per year on glucose testing strips and these strips have a gross profit margin of 75%. Considering the increase in the sale of testing strips, what is the incremental impact of this price drop on the firm's EBIT

Complete Question:

Glucose Scan Incorporated (GSI) currently sells its latest glucose monitor, the Glucoscan 3000, to diabetic patients for $129. GSI is considering lowering the sale price to $99 per unit. The cost of goods sold for each Glucoscan unit is $50, and GSI expects to sell 100,000 units over the next year. The marginal corporate tax rate is 40%. Suppose that if GSI drops the price on the Glucoscan 3000 to $99 immediately, it can increase sales over the next year by 30% to 130,000 units.

Also suppose that for each Glucoscan monitor sold, GSI expects additional sales of $100 per year on glucose testing strips and these strips have a gross profit margin of 75%. These strip sales occur on all monitor sales regardless of the price of the monitor. Including the increase in the sale of testing strips, the incremental impact of this price drop on the firms EBIT is closest to:

$720,000

Explanation:

Incremental Earnings Before Interest and Tax Analysis  

Details                                         Current price               Reduced price

Units Sold                                        100,000                         130,000

Unit sales price                                   129                                   99        

Sales Revenue                             $12,900,000                 $12,870,000

Cost of Goods sold at $50            5,000,000                  $6,500,000

Gross Profit                                    $7,900,000                  $6,370,000

G. Profit on Strips sold at $75      $7,500,000                  $9,750,000

Total Gross Profit for the year      $15,400,000                $16,120,000

The Net benefit of this price change is increase of Earnings before interest and tax by $720,000.

answer; proclamation of 1763;