The manager of Gringo, Inc. is considering raising its current price of $36 per
ID: 2456096 • Letter: T
Question
The manager of Gringo, Inc. is considering raising its current price of $36 per unit by 10%.If she does so, she estimates that demand will decrease by 20,000 units per month. Gringo currently sells 52,000 units per month, each of which costs $21 in variable costs. Fixed costs are $195,000.
a.
What is the current profit?
b.
What is the current break-even point in units? (Round your answer to the nearest whole number.)
c.
If the manager raises the price, what will profit be? (Do not round intermediate calculations.)
d.
If the manager raises the price, what will be the new break-even point in units? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
e.
Assume the manager does not know how much demand will drop if the price increases. By how much would demand have to drop before the manager would not want to implement the price increase? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
The manager of Gringo, Inc. is considering raising its current price of $36 per unit by 10%.If she does so, she estimates that demand will decrease by 20,000 units per month. Gringo currently sells 52,000 units per month, each of which costs $21 in variable costs. Fixed costs are $195,000.
Explanation / Answer
Gringo Inc. Current details Details Amt /Unit Total unit Units sold 52,000 Sales revenue 36 1,872,000 Variable Cost 21 1,092,000 Contribution 15 780,000 Fixed Cost 195,000 a Current Profit 585,000 x Unit contribution 15 y Fixed Cost 195,000 b Break Even sales units =x/y= 13,000 Profit after raising Price Details Amt /Unit Total unit Units sold 32,000 Sales revenue 40 1,267,200 Variable Cost 21 672,000 Contribution 19 595,200 Fixed Cost 195,000 c Revised Profit 400,200 m Unit contribution 19 n Fixed Cost 195,000 d Break Even sales units =m/n= 10,484 e. If the manager does not know about the demand drop then upto the previous profit level the manager would remain indifferent so the required demand level will be equivalent to demand at profit level 585000 after price rise So the quired contribution =195000+585000 =$780000 Unit contrinbution =$19 Required sales units =780000/19= So after 41053 units of sale the manager would not want to implement price increase.
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