Last month Suzila Q sold 24,000 litres of ice-cream. The variable costs were $2.70 per litre and each litre contributed 25 per cent of its revenue to fixed costs and profits. It has just discovered a new supplier which will enable it both to reduce its cost by $0.40 per litre and to improve its quality. However, it estimates that it will have to spend another $3,000 on advertising per month to inform customers of the improvement. Profits last month were $10,000.

Required:

a. What is the previous month's cost function?

b. What is the new cost function with the new supplier?

c. How many litres will Suzila Q have to sell to increase profit by 20 per cent, assuming it keeps its price the same?

d. If Suzila Q can raise its price by 10 per cent, what differences will this make to the sales in (c) above?