The manager of Coowie, Inc. is considering raising its current price of $30 per
ID: 3009150 • Letter: T
Question
The manager of Coowie, Inc. is considering raising its current price of $30 per unit by 10%. If she does so, she estimates that demand will decrease by 20,000 units per month. Coowie currently sells 50,700 units per month, each of which costs $21 in variable costs. Fixed costs are $192,000.
a.
What is the current profit?
b.
What is the current break-even point in units? (Round your answer to the nearest whole number.)
c.
If the manager raises the price, what will profit be? (Do not round intermediate calculations.
d.
If the manager raises the price, what will be the new break-even point in units? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
e.
Assume the manager does not know how much demand will drop if the price increases. By how much would demand have to drop before the manager would not want to implement the price increase? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
The manager of Coowie, Inc. is considering raising its current price of $30 per unit by 10%. If she does so, she estimates that demand will decrease by 20,000 units per month. Coowie currently sells 50,700 units per month, each of which costs $21 in variable costs. Fixed costs are $192,000.
Explanation / Answer
a. Current profit = 30*50,700 - 21*50,700 - 192,000 = $264,300
b. Let the break even point in units be x
30*x - 21*x - 192,000 = 0
=> 9x = 192,000
=> x = 21,333.33 = 21,333 units
c. On raising the price by 10%, new price = $33
New demand for units = ,50,700 - 20,000 = 30,700
New profit = 33*30,700 - 21*30,700 - 192,000 = $176,400
d, Let the new break even point be y
33*y - 21*y - 192000 = 0
=> 12y = 192000
=> y = 16000 units
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.