Question

In: Accounting

Your Fan retails computer fans in two sizes: small and large. The business has provided you...

Your Fan retails computer fans in two sizes: small and large. The business has provided you with the following information for a regular month of trading:

Small fans

Large fans

Selling price ($ per fan)

35

55

Purchase price ($ per fan)

25

35

Delivery cost to customer ($ per fan)

1.0

2.0

Monthly fixed cost ($)

15,000

Average monthly sales volume (units)

1,000

600

Business owners are considering selling computer fans in one size only. Retailing one fan size would mean lower purchase cost and selling price per unit and larger monthly sales volume. The table below reflects how trading would change if only small or large fans were sold.

Only small fans

Only large fans

Selling price ($)

33

53

Purchase price ($)

20

30

Delivery cost to customer ($ per fan)

1.0

2.0

Monthly fixed cost ($)

13,800

17,100

Average monthly sales volume (units)

2,000

1,300

Required:

For each of the three scenarios (selling both fans, selling small fans only, and selling large fans only), calculate the expected monthly profit.

Answer here:

Expected monthly profit if selling both fans:

Expected monthly profit if selling small fans only:

Expected monthly profit if selling large fans only:

Your Fan decides to switch to retailing small fans only. What would the monthly sales volume (in dollar value) need to be to generate a monthly profit that is double of the monthly fixed cost?

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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