Richard Winchester, owner of Winchester Products, is considering introducing a new product which will require $45,000 in fixed costs per year. Winchester estimates the variable costs of each unit produced at $12.5.
a) If the unit selling price is set at $18.5, how many units must be produced and sold per year in order to break even? Solve both graphically and algebraically, and interpret your solution.
b) How many units must be sold to realize a profit of $15,000?
c) Winchester forecasts sales of 9,000 units for the first year if the selling price is set at $18.5, and 12,000 units if the selling price is set at $17.5. Which pricing strategy would you recommend to Winchester?
d) What other considerations would be crucial to the final decision about making and marketing the new product?