Quikpak sells returnable containers to major food processors. The price received for the containers is Khs.300 per unit. Of this amount Khs.187.5 is profit contribution. Quikpak is considering an attempt to differentiate its product through quality improvement at a cost of Khs.75 per unit. Current profits are Khs.6M on sales of 100,000 units.Assuming that average variable costs are constant at all output levels, find Quikpak’s total cost function before the proposed change.Calculate the total cost function if the quality improvement is implemented.Calculate Quikpak’s break-even output before and after the change, assuming it cannot increase its price.Calculate the increase in sales that would be necessary with the quality improvement to increase profits to Khs. 6.75M.

In economics, the total cost of each element of production includes the entire opportunity cost…

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Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 5E

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Quikpak sells returnable containers to major food processors. The price received for the containers is Khs.300 per unit. Of this amount Khs.187.5 is profit contribution. Quikpak is considering an attempt to differentiate its product through quality improvement at a cost of Khs.75 per unit. Current profits are Khs.6M on sales of 100,000 units.

Assuming that average variable costs are constant at all output levels, find Quikpak’s total cost function before the proposed change.
Calculate the total cost function if the quality improvement is implemented.
Calculate Quikpak’s break-even output before and after the change, assuming it cannot increase its price.
Calculate the increase in sales that would be necessary with the quality improvement to increase profits to Khs. 6.75M.

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