You and your friend have decided to go into business manufacturing suitcases. Yo

Question

You and your friend have decided to go into business manufacturing suitcases. You know fixed costs will be $120,000.00 a year, and you expect variable costs to be $45.00 per bag. a) If you plan to sell the bags to a local retail store in your hometown for $55.00, how many must you sell to breakeven? b) You and your friend want to increase the price of the bag to $60.00, so you and your friend believe that if you do a marketing plan (annual cost of $3,000.00) you can sell more bags. They currently sell 15,000 bags per year and estimate that with marketing the number that they sell should increase to 20,000. Should you and your friend raise the price? c) If you raise the price and do a marketing plan, how many must you sell to breakeven? Show all variables and all work. Format and take to two decimals.

Explanation / Answer

(a) Let the breakeven bags be x

Then 120000 + 45x = 55x

10x = 120000

x = 12000

(b) 120000 + 35 * 20000 + 3000 = 20000p

Solving p = $41.15

(c) Let the breakeven bags be x.

If the price is raised to 60, 120000 + 45x + 3000 = 60x

123000 = 15x

x = 8200

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