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Cherokee company sells a single product that has a variable costs of $10
Cherokee company sells a single product that has a variable costs of $10.00 / unit fixed costs will be $700,000 across all of the levels of sales shown
| units sold | price per unit |
|---|---|
| 80,000 | $35.00 |
| 90,000 | $33.00 |
| 100,000 | $31.00 |
| 110,000 | $30.00 |
| 120,000 | $28.00 |
What price would Cherokee charge to maximize revenues?
Expert Solution
Given we have number of units to be sold and sale price.
We can compute the total revenue for the company by multiplying the units and sale price.
| units sold | price per unit | Total Revenue |
|---|---|---|
| (a) | (b) | (c ) = (a) * (b) |
| 80,000 | $35 | $2,800,000 |
| 90,000 | $33 | $2,970,000 |
| 100,000 | $31 | $3,100,000 |
| 110,000 | $30 | $3,300,000 |
| 120,000 | $28 | $3,360,000 |
We can see that the maximum revenue can be achieved by selling 120,000 units at $28 each.
We can also compute maximum profit
Table showing computation of profit
| units sold | price per unit | Total Revenue | Variable Cost | Fixed Cost | Profit |
|---|---|---|---|---|---|
| (a) | (b) | (c ) = (a) * (b) | (d) = (a) * $10 | (e ) | (f) = (c ) - (d) - (e ) |
| 80,000 | $35 | $2,800,000 | $8,00,000 | $700,000 | $1,300,000 |
| 90,000 | $33 | $2,970,000 | $9,00,000 | $700,000 | $1.370,000 |
| 100,000 | $31 | $3,100,000 | $1,000,000 | $700,000 | $1,400,000 |
| 110,000 | $30 | $3,300,000 | $1,100,000 | $700,000 | $1,500,000 |
| 120,000 | $28 | $3,360,000 | $1.200,000 | $700,000 | $1,460,000 |
As we can see that the company can generate maximum profit of $1,500,000 when the product is prices at $30.
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