Citizen sells a watch for​ $35 at a variable cost of​ $15 per unit and fixed cost of​ $1 million per annum. Recent recession has seen jump in material cost by​ $7. What is the change in profit due to recession if Citizen produces and sells 100 comma 000 watches in a​ year?

To calculate the change in profit due to the recession, let’s break down the problem step-by-step.

### Given Information:
- Selling price per watch = $35
- Original variable cost per watch = $15
- Increase in variable cost due to recession = $7
- New variable cost per watch = $15 + $7 = $22
- Fixed costs per year = $1,000,000
- Number of watches produced and sold per year = 100,000

### Step 1: Calculate Initial Profit (Before Recession)
1. **Revenue** = Selling price per watch $\times$ Number of watches
   \[
   = 35 \times 100,000 = 3,500,000
   \]

2. **Total Variable Cost (before recession)** = Original variable cost per watch $\times$ Number of watches
   \[
   = 15 \times 100,000 = 1,500,000
   \]

3. **Total Cost (before recession)** = Total Variable Cost + Fixed Cost
   \[
   = 1,500,000 + 1,000,000 = 2,500,000
   \]

4. **Initial Profit** = Revenue - Total Cost (before recession)
   \[
   = 3,500,000 - 2,500,000 = 1,000,000
   \]

### Step 2: Calculate New Profit (After Recession)
1. **New Total Variable Cost (after recession)** = New variable cost per watch $\times$ Number of watches
   \[
   = 22 \times 100,000 = 2,200,000
   \]

2. **New Total Cost (after recession)** = New Total Variable Cost + Fixed Cost
   \[
   = 2,200,000 + 1,000,000 = 3,200,000
   \]

3. **New Profit** = Revenue - New Total Cost
   \[
   = 3,500,000 - 3,200,000 = 300,000
   \]

### Step 3: Calculate Change in Profit
\[
\text{Change in Profit} = \text{Initial Profit} - \text{New Profit}
\]
\[
= 1,000,000 - 300,000 = 700,000
\]

### Answer:
The change in profit due to the recession is a **decrease of $700,000**.

---

Would you like further details on any step? Here are some related questions to consider:

1. How would a different increase in material costs affect the profit change?
2. What would happen to profit if the fixed costs increased as well?
3. How many units would need to be sold to break even after the recession impact?
4. What would be the effect on profit if the selling price increased by $5 to counterbalance the recession cost?
5. How would a decrease in production volume affect overall costs?

**Tip:** Always separate fixed and variable costs for clearer profit analysis when costs fluctuate.

Citizen sells a watch for $35 at a variable cost of $15 per unit and fixed cost of $1 million per annum. Recent recession has seen jump in material cost by $7. What is the change in profit due to recession if Citizen produces and sells 100,000 watches in a year?

Discover how a recession impacts profit in watch sales with a detailed calculation. Learn about revenue, variable costs, and fixed costs in this scenario involving selling 100,000 watches with a price increase in materials. Key data points include initial profit of $1,000,000 and a decrease in profit of $700,000 due to rising costs.

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