Reference no: EM132503521
Adelais Inc. sells brand A. The variable cost per unit is $16, and the contribution margin is 20%. The fixed costs are $4,000,000 a year.
The size of market where brand A is sold is 20,000,000 units. Currently A sells 3,000,000 units. The variable costs change based on the sales volume. If the sales are less or equal to 2,800,000 units, the variable cost per unit is $16. If the sales are between 2,800,001 and 5,000,000 units, the variable cost per unit is $15. If the sales go above 5,000,000 units, the variable cost per unit drops to $14.
Question 1: What is the BEP in units?
Question 2: What is the necessary market share for A to break even?
Question 3: What is the profit?
Adelais is considering two different strategies. In the first one, they want to hire 4 salespeople. Each one will receive a salary of $50,000 a year. They will also get paid with a commission of 15% of sales. The sales are expected to increase by 50%.
Question 4: What is the new BEP in units?
Question 5: What is the annual profit?
The second strategy: Instead of hiring 4 salespeople, the managers of Adelais are considering a 20% price cut. The price-demand elasticity E = - 4.0. [Reminder: E = (% change in demand)/(% of change in price)].
Question 6: What is the profit?
Question 7: What is the new BEP in units?
Question 8: If the price-demand elasticity was unknown, calculate how high it should be in order to generate the same profits as in the case without the price cut
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