Question

In: Finance

​If you knew that a 25 % discount on the last 200 units would cause the new sales to increase to a total of 430, would you do it?

Break-Even Analysis                                                                                                                  

Unit Revenue    $900   

Fixed Cost         $50,000   

Marginal Cost   $400

Postage per unit            $10                                                                                                      

Fax Machine cost          $90                                                                                                      

"New Sales" Forecast    300   

Confirmed future orders            100                                                                                                      

  

                                                                                                                        

                                                                                                                           

If you knew that a 25 % discount on the last 200 units would cause the new sales to increase to a total of 430, would you do it?                                                                                                               

                                                                                                                        

Solutions

Expert Solution

Formula for calculating Break Even Point = Fixed Cost ÷ (Revenue Per Unit - Marginal Cost)

Total Fixed Cost (FC) = $50,000 + Fax Machine Cost

= $50,000+ $90 = $50,090.

Total Marginal Cost (FC)= $400+$10= $410.

Break Even Sales before Discount = 50,090 / (900-410) = 102 Units

Total Profit /Surplus= =(300-102)*900 = $178,200

After 25% discount to last 200 units, Unit revenue will be = ((230*900)+(200*900*75%)) / 430 =795 per unit

Break Even Sales = 50,090 / (795-410) =130 units

Total Profit /Surplus after Discount =(430-130)*795 = 2,38,500

Hence discount of 25% will result in higher cash flow.

jeff jeffy answered 2 years ago
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