Question

Your company produces and sells cat food. Your company’s fixed cost is $4,500 per day and...

  1. Your company produces and sells cat food. Your company’s fixed cost is $4,500 per day and its variable cost is $25 per case of cat food produced. After researching the market, you estimate the price your company can sell each case of cat food to be $58-$0.40D where D is the number of cases sold per day. Without using the equations in your book:
    1. How many cases should your company sell per day to maximize its daily revenue?
    2. How many cases should your company sell per day to maximize its daily profit?

What is the range of cases of cat food the company should sell per day to be profitable?

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Homework Answers

Answer #1

Given Details

1. Fixed cost of the company : $4500 per Day

2. Variable cost - $25 per day

3. Price of the cat food- $58-$0.40D

To find the range of cases of cat food the company should sell , first we need to find the minimum number of cases it should sell to reach the break even point.

Formula to arrive at the break even point is Fixed cost/ Selling price - Variable cost

So 4500/58-(25+0.40 ) i,e is equal to 138 cases

Company should sell more than 138 cases to remain in profit.

Conclusion:

The company should sell more than 138 cases in a day to maximize its revenue and to maximize its profit. With every one case from 138 case, company will be earning nearly 32rs per case. More the cases sold more the profit will be.

The range of case it should sell is greater than 138 cases.

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