Question

Question 1: Problem solving

A handicraft products trader is selling leather cases for $40 the unit. To run his business, he needs to pay $10000 for rent, $5000 salaries, and another $5000 for marketing campaigns. The handicraft trader has the choice to import his products from different countries, and it will cost him $20 per unit if the product comes from China, $25 per unit if the product comes from India, and $15 per unit if the product comes from Malaysia.

Questions:

1. If the trader must choose to import his products from one country, then which country will it be?
2. compute the trader’s profit if he sells 40 units imported from China and 50 units imported from India.
3. compute the trader’s profit if he imports only from China and sells 500 then 2000 units. Explain the obtained results.
4. What is the trader total cost from importing 100 units from Malaysia and 200 units from India ?
5. If the trader decides to import only from China, how many units he should sell to reach a profit of $2000?
6. If the trader wants to reach a positive profit in case of selling 900, 110, and 1500 units, then from where he should import his products for each case.

Answer 1

a)

The country must be that country, whose cost is minimum. In the given ques, malaysia has minimum cost. Therefore trader must choose malaysia to import its products.

b)

Fixed cost = 20,000

Cost of importing from China and india = 20x40 + 25x50 = 800 + 1250 = 2050

Revenue = 40 x 90 = 3600

Profit = revenue - total cost = 3600 - 22,050 = - 18450

Therefore loss of 18450.

c)

Revenue =2500 x40 = 1,00,000

Cost of importing = 2500 x 20 = 50,000

Profit = revenue - total cost = 1,00,000 -50, 000 -20, 000 = 30,000

Therefore, yrader make a profit of 30,000.

d)

Cost of importing from malaysia and india = 100x15 + 200x25 = 1500 + 5000 = 6500.

Total cost = fix cost + cost of importing = 26,500.

e)

On selling one unit, he make a profit of 40-20 =20

Let total unit sold =Z

Total Profit = profit on selling z unit - fix cost

2000 = 20 x -10, 000

12000 /20 =Z

Z = 600 units.

f)

In case of 900 and 1500 units, trader can import any of the three countries in order to get positive profit.

In case of 110 units, no country can lead him to positive profit.