Currently, you sell 40,000 units of a product for $45 each

Finance Aug 14, 2020

Currently, you sell 40,000 units of a product for $45 each. The unit variable cost of producing the product is $5. You are thinking of cutting the product price by 30%. You are sure this will increase sales by an amount from 10% to 50%. Perform a sensitivity analysis to show how profit will change as a function of the percentage increase in sales. Ignore fixed costs.

Please use excel and show all formulas used. Thank you.

Expert Solution

Determination of Profit Equation:

New price = $45 *(1 - 30%) = $31.5

Let new quantity be Q.

Profit = Q * (Selling price - Unit variable cost)

= Q * ($31.5 - $5)

= Q * $26.5

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