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Unformatted text preview: increase of $21,908 after-tax profit. b. As shown above and assuming that facility costs are irrelevant to the decision, the counter offer also is profitable. c. The breakeven price just covers sales commissions and unit-level costs, as follows: Let P = the unknown price 0 = P- 0.1 P 85,200 0.9 P = 85,200 P = $94,667 (note that taxes are irrelevant at breakeven) d. Profits will likely fall. Framar originally used a full-cost pricing formula to derive a $135,238 bid price. A drop in selling price to $127,000 signifies that the firm is now pricing its orders at less than full cost, which would depress profitability. Reduced prices could lead to an increase in income if the firm is able to generate additional volume. This situation will not occur here: problem data state that Framar has operated and will continue to operate at 75 percent of practical capacity....
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