Who is smart enough to help me nail these two cases?
Hi guys,
Can anybody help me master these two cases and provide some explanation on the way to tackle these as well? Would be highly appreciated!
Case 1: Your company has two offers from which it can only accept one; sell 2 million of its products for 2 dollar each or sell 1 million of its products for 1,8 dollar each. What should be the cost price range to accept offer 2? --> I know that at a cost price of 1,6 dollar, option 2 becomes the most appealing. But how can I see this directly, which formula to use here and gain insights into the fact that at 1,6 dollar the profit is equal for both and below a cost price per unit of 1,6 dollar option 2 is the most interesting
Case 2: Let´s say a company has fixed costs per unit of 0.8 dollar and variable costs per unit of 0.4 dollar and it adds a margin of 0.1 dollar. So in total they sell their products for 1.3 dollar per unit. Now the question is, if you have a competitor which is twice the size of this company, how does it fixed costs per unit and variable costs per unit differ (in percentages assuming all other things are equal). And what if you have a competitor that is 4 times as small?
Thanks guys!
You should be smart enough to do your homework on your own. Neither of your questions are coherent anyways.
Those aren't cases so much as algebra questions. y=mx+b. Solve.
Sorry, as Sojourner said, your questions are incoherent
1)
Because HOW can it possibly be that an offer for LESS volume at a LOWER price can be preferred?
The formula, by the way, is 2000000(2-c) 1000000(1.8-c)
And the results says that for a cost higher than 2.2, you lose less by accepting the second offer.
But for any unitary cost higher than 2, you still must reject both of them (of course, a single C assumes that there are no economies of scale, therefore no fixed costs, which you have to verify before starting to shout answers)
2)
Question very ill defined. You never get the fixed costs per unit: you get the total fixed costs, and then find how they vary when volumes change. Now, I have no idea of what you mean by saying "a competitor twice bigger/4 times smaller". Bigger in what? Fixed costs? Volumes? You seem to imply in volumes. Which would mean that the variable costs do not change, and assuming same fixed costs, fixed costs per unit become 0.4 in the first case and 0.32 in the second case.
Summary: given these questions, I wouldn't smack the interviewer in the head only because they must be a shit test. And if I didn't point out their incoherence, I would deserve to be smacked in the head.
This is literally how I got presented the assignments...only thing what I can say additionally with regards to the 2nd one; fixed costs can be spread per unit and yes, variable costs do change with volume due to the experience curve. This is actually something you can calcultate (20% approx less when volume doubles)...but there is a way to calculate this precisely...
For case 1 I indeed made an error; it should be like this:
Your company has two offers from which it can only accept one; sell 1 million of its products for 2 dollar each or sell 2 million of its products for 1,8 dollar each. What should be the cost price range to accept offer 2? --> I know that at a cost price of 1,6 dollar, option 2 becomes the most appealing. But how can I see this directly, which formula to use here and gain insights into the fact that at 1,6 dollar the profit is equal for both and below a cost price per unit of 1,6 dollar option 2 is the most interesting
Fugit iste quia voluptas eum. Aut qui earum magnam blanditiis quia. Laudantium dolor totam quis eos et deserunt dignissimos.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...