Question

A company produces a special new type of TV. The company has fixed costs of $472,000, and it costs $1000 to produce each TV. The company projects that if it charges a price of $2600 for the TV, it will be able to sell 750 TVs. If the company wants to sell 800 TVs, however, it must lower the price to $2300. Assume a linear demand. What price should the company charge to earn a profit of $1,068,000? It would need to charge $

Answer 1

P/V ratio = Contribution /sales = $1,300/$2, 300 = 56.52%

Note : Contribution = $ ( 2,300- 1000) = $1, 300

Sales = $ 2,300

Sales for desired profit = Fixed cost + desiredprofit P/V ratio

= $4,72,000 + $10,68,000 56.52%

= $ 27,24,699.22

Company will charge $27, 24,699.22 to earn a desired profit of $10, 68,000