Question

can i get the answer to this question? due in about an hour

Acme Widget Company, based in Oregon, makes widgets for the US market. Each widget sells for $200 at retail (price that customers pay). Acme Widget, however, does not sell widgets directly to consumers. It has dealers who get a 35% dealer commission (off retail customer price of $200) for each widget they sell to end-user for $200. Each widget uses $5.15 of titanium; $26.75 worth of chips & electronics; $14.45 worth of plastic parts; $3.57 of glass. The widget is assembled in Acme's own facility that has 10 assemblers who are paid a salary of $3000 per month plus $2.00 bonus for each widget assembled. Acme has 7 sales reps who are paid entirely on commission. They get $25 for each widget sold. Office/factory lease rate is $15,500 per month. Utilities cost $3,453 per month. Other overhead costs are $225,000 per month. Acme, on average, sells 10,000 widgets per month. Acme's VP of sales has been recommending lowering prices. She believes that a 10% price decrease will increase sales by about 10%, and a 15% price decrease, she believes, will bring in 20% more unit sales. CEO of the company has asked you, the CMO, to make a recommendation on price change request from the VP of Soles. In speaking with many of Acme's dealers, you have learnt that a 15% price increase will lower Acme's sales by somewhere between 17% to 24%. Dealers have also confirmed that price reduction will bring in more sales and their estimate of sales increase is in line with what Acme's VP of Sales has stated.

Answer 1

Cost of selling the widget to the retailer =200x(1-0.35)=130

Variable cost pr unit = 49.92 per unit ( materials ) + (25+2) in variable overhead = 76.92

Fixed cost = 3000x10+15500+3453+225000 =273953

Net profit per month = (130-76.92) x10000-273953 = 256847

Case I- 10% price reduction

New contribution per unit = 130x0.9 - 76.92 =40.08

New profit = 40.08x1.1x10000 -273953 =166927

Case II - 15% price reduction

New contribution per unit = 130x0.85-76.92 = 33.58

New profit = 33.58x1.2x10000 -273953 =129007

Case III- If the price is increased by 15%

New contribution = 130x1.15 -76.92 = 72.58

If the reduction in sales is 17%, the new profit

= 72.58 x 0.83x10000 - 273953 =328461

if sales decreases by 24%

new profit = 72.58x 0.76 x 10000 -273953 =277655

It can be seen that in any case, incrasing the price by 15% is the best option even if it results in reduction of sales by 17% or 24%.

Option d is right.