Truckers distributes a birdhouse that sells for $20 per unit. Variable costs are

Question

Truckers distributes a birdhouse that sells for $20 per unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year Last year the company sold 18,000 units They are considering an increase m the sales commission of $1 per unit Combined with an increase in advertising, they forecast a 25% increase in annual sales volume. If they want profits to at least equal last year's level, what is the maximum amount they could increase advertising? ________________ Their competitor Drivers. operates a fleet of delivery cars in Canada The company has determined that if a car is driven 105.000 kilometers during a year, the average operating cost is 11.4 cents per kilometer. If a car is driven only 70.000 kilometers during a year, the average operating cost increases to 13.4 cents per kilometer Estimate the elements of the annual cost of car operation Fixed Costs _________ Variable Cost per km _____________

Explanation / Answer

sales   18000 units@$20per unit $360,000 Less : Variable cost 18000 units@8 per unit $144,000 Contribution margin $216,000 Less: Fixed expenses $180,000 Net income $36,000 Sales are increased by25% oflast year 360000*125/100 $450,000 Variable cost 144000*125/100+ sales commission $1 per unit $202,500 Contribution margin $247,500 Less: fixed expenses $180,000 Net income $67,000 operating cost per km if car is driven 105000kms 11.4 cents operating cost per km if car is driven 70000kms 13.4 cents difference in cost(Fixed cost per km) 2.0 cents operating cost per km if caris driven for 105000kms 11.4 less:fixed cost 2 Variable cost 9.4 cents operating cost per km if car is driven for 70000 kns 13.4 Less: fixed cost 2 variable cost 11.4cents

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