Question

Revenue: $500,000 Pants: $250,000 Packaging: $1,000 Advertising: $500 Rent: $1,000 Depreciation: $25 Assume the company wants to launch a “Spring Fling” promotion, where she would discount her pants by 10%. How many more pants would she have to sell to justify this promotion?

A. 25.13% more pants

B. 20.08% more pants

C. None of the above, but I could calculate this with the information I am given.

D. None of the above, I cannot calculate this with the information I am given.

Answer 1

A. 25.13% more pants

			Before promotion	After Promotion	Adding 25.13% to figures after promotion
	Revenue		500000	450000	563085
Less:	Cost of pants	Variable	250000	250000	312825
Less:	Packaging	Variable	1000	1000	1251.3
Less:	Advertising	Fixed	500	500	500
Less:	Rent	Fixed	1000	1000	1000
Less:	Depreciation	Variable	25	25	31.2825
Equals	Net Income		247475	197475	247477.4175
Advertising expenses have been assumed to be fixed
Rent is fixed expense
Depreciatin has been assumed to be variable as per the units of production

The promotion is justified when 25.13 more pants are sold as the net income from both becomes the same.