Question

You company sells inflatable suitcases that get bigger or smaller depending on the amount of clothing inside them. Each suitcase costs $40 to manufacture, and you sell them for an average of $110 per unit. It costs $5,000 per day to operate your factory (which is your only fixed cost). Noted travel writer Angelina Kumars has offered to endorse your suitcase for $36,500 per year ($100/day). You believe that, with Ms. Kumars' endorsement, you will sell an average of 120 units per day. Do you recommend that the company hire Ms. Kumars? Group of answer choices Yes No There is not enough information to answer this question.

Answer 1

Selling price per unit = $110

Cost of manufacturing per unit = $40

Contribution margin per unit = Selling price per unit - Cost of manufacturing per unit

= $110 - $40 = $70

Fixed cost per day (including advertising expenses) = $5,000 + $100 = $5,100

Average units sold in a day = 120

Total profit per day = ($70 * 120 units) - $5,100 = $3,300

The company will earn $3,300 per day (on an average), if it chooses to hire Ms. Kumars. But, the question fails to provide the information of average units sold per day if it does not choose to endorse its product. Therefore, with the given information, we cannot compare the results of two alternatives. So, the correct answer is " There is not enough information".