Question

7.Cherokee Company sells a single product that has variable costs of $10 per unit. Fixed costs will be $700,000 across all levels of sales shown.

**Units
Sold**
**Price per Unit**

80,000 $35

90,000 $33

100,000 $31

110,000 $30

120,000 $28

What price would Cherokee charge to maximize profit? Post full calculation

Answer #1

**Solution:**

Profit (if Price is $35) = Units Sold* (Sales price - Variable cost) - Fixed Costs = 80,000*($35-$10) - $700,000 = $1,300,000

Profit (if Price is $33) = 90,000*($33-$10) - $700,000 = $1,370,000

Profit (if Price is $31) = 100,000*($31-$10) - $700,000 = $1,400,000

Profit (if Price is $30) = 110,000*($30-$10) - $700,000 = $1,500,000

Profit (if Price is $28) = 120,000*($28-$10) - $700,000 = $1,460,000

Highest profit is $1,500,000 at the level of 110,000 unit sold at a price of $30 per unit.

Therefore, Price to be charged to maximize profit = $30 per unit

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