I. The capacity of the company is 70.000 units of electrical toys and can sell only 50.000 units for 50$ each. Fixed costs are 720.000$ and CMR 36%. New market research shows that decreasing the sale price 4$, the sale quantity will lead to an increase of 14.000 units. a. Discuss the decrease in the sale price based on financial reasons. b. Another suggestion to business management is to make 400.000$ investment to increase the capacity to 90.000 units. Such investment will increase the initial CMR to 50%. Discuss the investment suggestion with financial reasons.
I. The capacity of the company is 70.000 units of electrical toys and can sell only 50.000 units for 50$ each. Fixed costs are 720.000$ and CMR 36%. New market research shows that decreasing the sale price 4$, the sale quantity will lead to an increase of 14.000 units. a. Discuss the decrease in the sale price based on financial reasons. b. Another suggestion to business management is to make 400.000$ investment to increase the capacity to 90.000 units. Such investment will increase the initial CMR to 50%. Discuss the investment suggestion with financial reasons.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:I. The capacity of the company is 70.000 units of electrical toys and can sell only
50.000 units for 50$ each. Fixed costs are 720.000$ and CMR 36%. New market
research shows that decreasing the sale price 4$, the sale quantity will lead to an
increase of 14.000 units.
a. Discuss the decrease in the sale price based on financial reasons.
b. Another suggestion to business management is to make 400.000$ investment
to increase the capacity to 90.000 units. Such investment will increase the
initial CMR to 50%. Discuss the investment suggestion with financial
reasons.
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