Sarah has launched the EU marketing plan for Utter Mayhem and expects to sell 10
ID: 426537 • Letter: S
Question
Sarah has launched the EU marketing plan for Utter Mayhem and expects to sell 100,000 units in addition to those sold in the US. The retail price for the units sold in the EU is $60 USD. The distributor expense adds an additional $5 to the unit variable cost for each unit sold in the EU and fixed costs increase by $25,000. What are the firm’s TOTAL profits for both the US and the EU if it sells 75,000 games in the US?
Her FC, VC and price in the U.S. are:
FC = $1,200,000
Price = $55
Unit variable cost = $28
Hints:
• You need to determine Sarah’s new fixed costs AND her variable cost for each unit sold in the EU.
• Make sure you account for units sold in the US and the EU
• You are looking for TOTAL profits
Explanation / Answer
We can say :
Profit = Revenue – Total cost = Price/ unit x Number of units sold – Fixed cost- Variable cost ( including distributor expense if any ) per unit x Number of units sold
The relevant data for US as follows :
Price / unit = $55
Variable cost / unit = $28
Fixed cost = $1,200,000
Number of units sold = 75,000 games
Therefore ,
Profit, $ earned in USA
= 55 x 75000 – 1,200,000 – 28 x 75000
= ( 55 – 28 ) x 75000 – 1,200,000
= 27 x 75000 – 1,200,000
= 2,025,000 – 1,200,000
=$825,000
The relevant data for EU as follows :
Price / unit = $60
Variable cost / unit ( including distributor expense ) = $28 + $ 5 = $33
Fixed cost = $1,200,000 + $25,000 = $ 1,225,000
Number of units sold = 100,000
Therefore , profit, $ earned in EU
= 60 x 100,000 – 1,225,000 – 33 x 100,000
= ( 60 – 33 ) x 100,000 – 1,225,000
= $27 x 100,000 - $1,225,000
= $2,700,000 - $1,225,000
= $1,475,000
Therefore, total profit earned in US and EU together
= $825,000 + $1,475,000
= $2,300,000
FIRM’S TOTAL PROFIT FOR BOTH US AND EU = $2,300,000
FIRM’S TOTAL PROFIT FOR BOTH US AND EU = $2,300,000
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