Question 1 : A company is currently selling 500 units of a product per day at $10 per unit. You can assume that the product's variable costs are constant; they are now at 40 percent of the product's current price.
If the company's sales increase above 600 units per day, an incremental fixed cost of $240 will be incurred.
(a) What is the breakeven sales level for a 12 percent price increase?
(b) What is the breakeven sales level for a 12 percent price decrease?
Question 21 : The manager of a small business is considering lowering the price on his main product for the coming year. If there is any increase in the company's current sales, the manager would have to acquire another delivery truck.
He can obtain a used truck for $10,000. The market value of this truck would be expected to decline by $2,000 per year.
Assume that the manager would earn 6 percent annual interest on the $10,000 if he did not buy the truck.
What is the cost associated with this truck that is relevant to this pricing decision?