PugetBrick produces an eight-sided garden path brick that normally sells for $12
ID: 2580945 • Letter: P
Question
PugetBrick produces an eight-sided garden path brick that normally sells for $120. The company produces 8000 units annually but has the capacity to produce 11,000 units. Current unit costs for the 8000 bricks are as follows: Unit cost Direct materials 23.00 Direct labor 45.00 Variable overhead 7.00 Fixed overhead 12.00 Total cost per brick 87.00 Required (a): What price should PugetBrick charge to maximize profits based on the following sales (demand) estimate: (show calculation) Units Demanded Unit Price 6,000 $130 7,000 125 8,000 120 9,000 115 10,000 110 11,000 105 Required (b): if there is a tie in profit for two prices, what factors should the comany consider to choose the preferred selling price?
Explanation / Answer
Profit is maximised at 7000 units @ 125 per unit
If there is a tie in for two prices, the following factors are to be considered,
Porduction capacity of company, Levels of demand, actions of competitors, position in the market (brand value)
Income statement Partriculars Qty 6,000.00 7,000.00 8,000.00 9,000.00 10,000.00 11,000.00 Rate 130.00 125.00 120.00 115.00 110.00 105.00 Sales revenue 780,000.00 875,000.00 960,000.00 1,035,000.00 1,100,000.00 1,155,000.00 Direct material 138,000.00 161,000.00 184,000.00 207,000.00 230,000.00 253,000.00 Direct labour 270,000.00 315,000.00 360,000.00 405,000.00 450,000.00 495,000.00 Variable OH 42,000.00 49,000.00 56,000.00 63,000.00 70,000.00 77,000.00 Fixed OH 72,000.00 84,000.00 96,000.00 108,000.00 120,000.00 132,000.00 Total costs 522,000.00 609,000.00 696,000.00 783,000.00 870,000.00 957,000.00 Net Profit (Revenue - costs) 258,000.00 266,000.00 264,000.00 252,000.00 230,000.00 198,000.00Related Questions
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