Question
Power Trolley Pty Ltd (PT) makes and sells M26 trolleys. An analysis of the pricing and cost structure reveals that the M26 has been generating
Power Trolley Pty Ltd (PT) makes and sells M26 trolleys. An analysis of the pricing and cost structure reveals that the M26 has been generating a contribution margin of $100 per trolley andthat PT's fixed costs are $250.000 per month. TP's product development team have designed the new S50 trolley which has a higher carrying capacity and is more manoeuvrable. The S50 model requires additional equipment and facilitieswhich would increase the fixed cost by $50,000 per month but will reduce the variable cost by $40per trolley. TP is considering whether to replace the M26 with the S50 model. Competition has been intense, and PT has decided to use this innovation to enhance their competitive advantage. They decide to sell the S50 at the same price as they have been selling theM26. How many new trolleys would PT need to sell per month to derive an operating profit of$400,000 per month?
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