Reference no: EM132677473
A firm produces four products in a repetitive process facility. Product A sells for $60; its variable costs are $45. Product B sells for $150; its variable costs are $90. Product C sells for $65; its variable costs are $45. Product D sells for $35; its variable costs are $20. The firm has annual fixed costs of $400,000. Last year, the firm sold 1200 units of A, 2500 units of B, 5,000 units of C, and 12,000 units of D.
a) Calculate the break-even point of the firm and the expected profit.
b) The firm has some idle capacity at these volumes, and chooses to cut the selling price of A from $60 to $55 and the selling price of C from $65 to $60, believing that its sales volume of A will rise from 1200 units to 1750 units and its sales volume of C will rise from 5000 units to 7000 units. What is the revised break-even point and expected profit?
c) Using the original prices and demand data, plus the alternative prices and demand impacts given in part b. If the firm could choose between the following four scenarios: 1) change the selling price of A and not of C, 2) change the selling price of C and not of A, 3) change the selling price of A and of C, or 4) make no changes and keep selling prices and volumes at the original values. What is the expected profit of scenarios 1 and 2? Which scenario would you recommend to the firm and why.
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