A German machine company sells industrial machinery and maintenance policies for
ID: 1256004 • Letter: A
Question
A German machine company sells industrial machinery and maintenance policies for the machine. There are four market segments. Figure 5-9 shows the size of each market segment and the amount each segment will pay for the machine separately, maintenance separately, or the bundle of machinery + maintenance. The variable cost is $550 per machine and $470 per maintenance agreement. What set of prices maximize profi ts?
5.9
Machine Maintenance Bunddle
Costs $550 $470 $1020
Size Machine Use Max Mainenance Max Bundle Max
12 1250 1500 2600
23 1450 540 1750
22 1080 1200 2090
43 1390 1100 2350
Explanation / Answer
Size-wise total contribution should be calculated first.
Contribution / unit = Selling price / unit – Variable cost / unit.
Total contribution = Contribution / unit × Size
The highest total contribution indicates the highest profit.
Size 12
Particulars
Selling price / unit
Variable cost / unit
Contribution / unit
Total contribution
Machine
1250
550
700
8400
Maintenance
1500
470
1030
12360
Bundle
2600
1020
1580
18960
39720
Size 23
Particulars
Selling price / unit
Variable cost / unit
Contribution / unit
Total contribution
Machine
1450
550
900
20700
Maintenance
540
470
70
1610
Bundle
1750
1020
730
16790
39100
Size 22
Particulars
Selling price / unit
Variable cost / unit
Contribution / unit
Total contribution
Machine
1080
550
530
11660
Maintenance
1200
470
730
16060
Bundle
2090
1020
1070
23540
51260
Size 43
Particulars
Selling price / unit
Variable cost / unit
Contribution / unit
Total contribution
Machine
1390
550
840
36120
Maintenance
1100
470
630
27090
Bundle
2350
1020
1330
57190
120400
Answer: The highest total profit is $120,400. It is for the size 43. Therefore, the required selling price for machine is $1,390, Maintenance is $1,100, and Bundle is $2,350.
Particulars
Selling price / unit
Variable cost / unit
Contribution / unit
Total contribution
Machine
1250
550
700
8400
Maintenance
1500
470
1030
12360
Bundle
2600
1020
1580
18960
39720
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.