A product is currently made in a process-focused shop, where fixed costs are $8,

Question

A product is currently made in a process-focused shop, where fixed costs are $8,000 per year and variable cost is $40 per unit. The firm currently sells 200 units of the product at $200 per unit. A manager is considering a repetitive focus to lower costs (and lower prices, thus raising demand). The costs of this proposed shop are fixed costs = $24,000 per year and variable cost = $10 per unit. If a price of $80 will allow 400 units to be sold, what profit (or loss) can this proposed new process expect? Do you anticipate that the manager will want to change the process? Explain.

Explanation / Answer

Sales = Selling price x Quantity sold

Variable cost = Quantity Sold x Variable cost per unit.

So, as we can find, the new process will result in a fall in profits. So, it is not recommended.

Quantity 200 400 Old New Sales 40000 32000 Less: Variable costs 8000 4000 Contribution 32000 28000 Less: Fixed Costs 8000 24000 Profit 24000 4000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.