A firm is able to sell 25,000 units at $ 10 per piece. The company fixed cost is

ID: 2610237 • Letter: A

Question

A firm is able to sell 25,000 units at $ 10 per piece. The company fixed cost is $50,000. Variable cost is $5 per unit.

a. What is the contribution per unit?

b. What is the breakeven sales in $? What is the breakeven sale in units?

c. What is the markup on sales price? What is the mark up on total cost?

They raise the price to $15 and demand drops to 15000.

d. Calculate the price elasticity.

e. What is the new markup (profit margin %) on the sales price ($15)?

f. What is the new mark up (profit margin %) on total cost?

g. Please calculate the total profit for this company as well as the profit per each toy sold.

h. Are they better off raising the price?

a) contribution per unit= sales price per unit- variable cost per unit= 10-5= $5 per unit

b) Break even sales in units= fixed cost/ contribution per unit= 50000/5 = 10000 units

Break even sales in $= 10000*10=$100,000

c) mark up on sales price= (25000*10-50000-25000*5)/(25000*10)=75000/250000= 30%

mark up on cost= 75000/(25000*5+50000)= 43%

Mark up on cost= 5/5=100%

d) Price elasticity=((15000-25000)/(15000+25000))/((15-10)/(15+10))=-1.25

e) New markup on sales= (15*15000-5*15000-50000)/(15000*15)=44.44%

f)new markup on cost= (15*15000-5*15000-50000)/(15000*5+50000)=80%

g) Total profit= (15*15000-5*15000-50000)= $ 100,000

Total profit per unit= 100000/15000= $6.67 per unit

h)Total profit earlier=10*25000-5*25000-50000= $75,000

They are better off as the profit has increased by $ 25,000 by raising the price.

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