I am literally brain dead at this point...can anyone help me with the below thre
ID: 2372751 • Letter: I
Question
I am literally brain dead at this point...can anyone help me with the below three questions? It would be GREATLY appreciated.
Pete%u2019s Pet Products is a sole proprietorship owned by Pete Thompson. The store provides a full-line of pet products, including food, grooming materials, toys, leashes, etc. The company also sells hand-made pet houses, including dog houses, bird cages, and cat castles. Each of the pet houses is being evaluated in terms of cost-volume-profit. See the relevant information below:
When Pete uses a distributor to sell additional pet houses, he has to pay a sales commission of 8% of the sales price. On average, he sells 60% of each pet house through distributors. The fixed costs (shown above) are based on estimated design time for each product. Pete%u2019s store averages $32,000 of fixed costs per month.
Refer to the Course Schedule within the Syllabus for specific project deliverables and due dates.
Explanation / Answer
Fixed costs for dog house = 9600
for bird cage = 8000
for cat castle = 14400
pete will have to reduce their variable cost by the amount distributor is demanding more ( i.e from 8% to 12% ). only then he will able to maintain breakeven point.
breakeven point for dog house after 10% reduction in cost. selling price = 126
variable cost = 65
fixed cost = 9600+2000 = 11600 so
126x = 11600 + 65x which gives x = 190.16 or 196 houses.
factors effecting bid of pete were his compitition and his desired profit. he has to keep in mind that the compitition is very tough so he has to make bid accordingly and he should also consider the fact that his bid should not gone below a certain level because below that he will goes in loss.
Yes I would recommend pete to drop down his selling price because consinement is very big. considering it takes him 1 month to make these project he could have earn = 450*75 + 250*61 + 550*104 - 32000 = 74200. so he can reduce selling price by some amount to gain some what less profit.
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