Exercise 13.23 Lickety Split sells ice cream cones in a variety of flavours. The

Question

Exercise 13.23 Lickety Split sells ice cream cones in a variety of flavours. The following are data for a recent week: Revenue (1,000 cones at $1.90 each)$1,900 Cost of ingredients Rent Store attendant $680 530 6501.860 $40 Pretax Income The manager estimates that if she were to increase the price of cones from $1.90 to $2.07 each, weekly volume would be cut to 850 cones due to competition from other nearby ice cream shops Estimate the profit-maximizing price per cone Round entry to 2 decimal places e.g. 15.25 Round percentage change to 2 decinal places e g 25 25% and east city to 3 decina places e ses or our calculations. Price per cone

Explanation / Answer

Basic calculations

Revenue at price of 2.07 = 850 cones * 2.07 = 1759.5

Cost of Ingredients = 680 / 1000 * 850 = 578

Rent and store attendents shall be fixed cost, hence does not change with volume.

Profit maximizing price = 1.90. Because at new price of 2.07 the overall pre tax profit decreasing to $ 1.50

Price per tone = $ 1.90

Price = 1.90 Price = 2.07     Revenue 1900 1759.5 Cost of Ingredients 680 578 Rent 530 530 Store attendent 650 1860 650 1758 Pre tax Income $ 40 $1.5

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