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)
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
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