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Currently you are selling 700 units
Currently you are selling 700 units. Selling price is $ 60 per unit & variable cost is $ 40 per
unit. Total fixed cost is not known.
The marketing manager commits to increase a certain sales growth under the following terms
and conditions:
1. 10% discount in the selling price
2. increase sales commission by $ 5 per unit
3. Total reduction of salary by 8,000
4. Increase the advertisement budget by another 11,000
What is the minimum sales growth that you should be looking for if you want to accept the
above proposal?
Expert Solution
In order to accept the new proposal, new proposal should at least earn the profit under current scenario.
Let 'x' be the desired number of units to sell in new proposal.
Therefore, profit under current scenario and new proposal shall be same.
=> 700units*(60-40)=x units*(60-60*10%-5-40)+8000-11000
=> $14,000=9x-$3,000
=> 9x=$17,000
=> x=1,888.88 units~1,889 units.
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