Tigger has budgeted to make 50,000 units of its product, timm. The variable cost of a timm is $5 and annual fixed costs are expected to be $150,000.
The financial director of Tigger has suggested that a profit margin of 25% on full cost should be charged for every product sold.
The marketing director has challenged the wisdom of this suggestion, and has produced the following estimates of sales demand for timms.
|
Price per unit
|
Demand
|
|
$
|
Units
|
|
9
|
42,000
|
|
10
|
38,000
|
|
11
|
35,000
|
|
12
|
32,000
|
|
13
|
27,000
|
Required
(a) Calculate the profit for the year if a full cost price is charged.
(b) Calculate the profit-maximising price.
Assume in both (a) and (b) that 50,000 units of timm are produced regardless of sales volume.