Case Scenario: Carrier sells air conditioning units to distributors. Ahead of the upcoming summer, demand probability is 40,000 units (25%), 55,000 units (35%), 70,000 units (25%), and 80,000 units (15%).
Fixed cost of production = $500,000
Variable cost of production per unit = $1,200
Per unit selling price= $1500
Salvage value for unsold products = $900
Answer the following questions:
If the manufacturer is considering production quantities of 40,000 units or 80,000 units, assuming 90% of product will be sold and 10% will be salvaged, what is the profit per unit? Which option would you select and why?