Gross profit formula determines second-year sales Steps:

• First-year gross profit = $10,000 sales -$4,500 costs = $5,500.
• Second-year gross profit = $5,500 -$250 = $5,250.
• Second-year costs = 1,500 units × $4.50/unit =$6,750.
• Second-year sales = $5,250 +$6,750 = $12,000.

Why C is correct:

• $12,000 equals gross profit ($5,250) plus cost of sales ($6,750), per the gross profit formula: Gross Profit = Sales - Cost of Sales.

Why the others are wrong:

• A. $9,750 yields gross profit of$3,000 (decrease $2,500, not$250).
• B. $$3,500 (decrease 250).

Final answer: C