Question

1. For a table manufacturing company, selling price for a table is $207.00 per Unit, Variable cost is $24.00 per Unit, rent is $4,096.00 per month and insurance is $220.00 per month. Company wants to expand its business and improve the table quality, it wants to increase the selling price for a table to $288.00 per Unit, Variable cost to $50.00 per Unit, bigger area will have rent $5,748.00 per month and insurance is $353.00 per month At what point will the company be indifferent between the current mode of operation and the new option?

Answer 1

Answer

According to question, we have to find units where profit will be same in both the option i.e. Before Change and after change.

So,

Units will be same, so let’s assume units = x

Profit = Sales – Variable Cost – Rent – Insurance

Profit before change = ($207 * x) – ($24 *x) - $4,096 – 220

= 207x – 24x – 4,316

Profit before change = 183x – 4,316

Profit after change = ($288 * x) – ($50 *x) - $5,748 – 353

= 288x – 50x – 6,101

Profit after change = 238x – 6,101

Profit before change = Profit after change

183x – 4,316 = 238x – 6,101

238x – 183x = 6101 – 4316

55x = 1785

X = 32.4545454545

So the answer is in points, We have to sell 32.4545454545 Units where profit will be same.

BUT the units cannot be in points so let’s round off and

Answer = 33 Units.

There will be some difference in Profit as the answer is in points and we cannot sell point units.