Submitted By msgandotra
Words 867
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a)Swing:
Sales: 5000
Price per unit: \$10
Variable Cost per unit: \$2.5
Fixed Cost: \$35000
Current Profit: \$ 2500
New Price per additional unit: 0
New Contribution Margin = New Price per unit – Variable cost per unit =\$8.5-\$2.5 =\$6
New Sales unit @40% additional sales= 5000*40%= 2000
New Sales unit @20% additional sales= 5000*20%= 1000

Price per unit: \$10
Variable Cost per unit: \$5.5
Fixed Cost: \$35000
Current Profit: \$ 2500
New Price per additional unit: \$8.5
New Contribution Margin = New Price per unit – Variable cost per unit =\$8.5-\$5.5 =\$3
New Sales unit @40% additional sales= 5000*40%= 2000
New Sales unit @20% additional sales= 5000*20%= 1000
Both the companies should enter the market as they are realizing additional profits by charging a lower price for the new market.

b)Swing : ∆P =-1.5
CM= Price- Variable Cost= \$10-\$2.5 =\$7.5
% Break-even sales change= -∆P/(CM + ∆P) = 1.5/(7.5-1.5) = 25%
% Break-even sales change in units =5000*25% =1250
Total Break-even sales=5000+1250= 6250
Change in Profit for 40% increase in sales= (Sales change in units- Break-even sales change) * New contribution Margin =(2000-1250)*6 =750*6 =\$ 4500
CM= Price- Variable Cost= \$10-\$5.5 =\$4.5
New CM= New Price – Variable Cost= 8.5-5.5= 3
% Break-even sales change= -∆P/(CM + ∆P) = 1.5/(4.5-1.5) = 50%
% Break-even sales change in units =5000*50% =2500
Total Break-even sales=5000+2500= 7500
Change in Profit for 40%…...

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