Recalculate the income statement shown in Exhibit 1 using the post-Brexit Exchange rate of 1 =1.16, assuming that the UK subsidiary increases its price to UK buyers to 235 per unit.Assume that fixed cost remain fixed and variable cost cary proportionally to volume or quantity sold. Assume that UK purchasers' consumer behavior is skmewhat elastic and that market research suggests that their elasticith = 1.1. Using the simple price elasticity formula calculate profit in both pounds and euros

Per Unit Quantity (3) Pound () Euros (6) GBP / EUR = 1.16 Sales (in GBP) Contract Labor (Variable Cost) (In GBP) Import of Coffee Machines (90 per unit) Marketing (Fixed Cost) Other Fixed cost Profit (Sales - Costs) 90 (4) Things to consider: For (3) What does Price Elasticity = 1.1 mean for the new quantity under sa Would the quantity decrease or increase, and by how much? What would be the % Change In Quantity Demanded under S2? Contract Labor Cost: Initial Quantity from Exhibit 1 = ? Initial Total Contract Labor Cost from Exhibit 1 = ? Contract Labor Cost Per Unit = ? Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. Profit = Sales - Costs EXHIBIT 1: PRE-BREXIT INCOME STATEMENT (ANNUALIZED), ASSUMING 1.00 = 1.36 Per Unit 200 Quantity (Units) 40,000 8,000,000 . 200,000 2,647,059 90 40,000 3,600,000 Sales in U.K. U.K. Costs Contract Labour (variable cost) Import of Coffee Machines (invoiced at 90 each) Marketing and Distribution Costs (assumed to be fixed costs) Other Fixed Costs: Overheads, Interest, Depreciation, Rent, Salaries, etc . 400,000 . 500,000 Profit (U.K. Subsidiary) 4,252.941 Or 5,784,000 Source: Company documents Per Unit Quantity (3) Pound () Euros (6) GBP / EUR = 1.16 Sales (in GBP) Contract Labor (Variable Cost) (In GBP) Import of Coffee Machines (90 per unit) Marketing (Fixed Cost) Other Fixed cost Profit (Sales - Costs) 90 (4) Things to consider: For (3) What does Price Elasticity = 1.1 mean for the new quantity under sa Would the quantity decrease or increase, and by how much? What would be the % Change In Quantity Demanded under S2? Contract Labor Cost: Initial Quantity from Exhibit 1 = ? Initial Total Contract Labor Cost from Exhibit 1 = ? Contract Labor Cost Per Unit = ? Fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. Profit = Sales - Costs EXHIBIT 1: PRE-BREXIT INCOME STATEMENT (ANNUALIZED), ASSUMING 1.00 = 1.36 Per Unit 200 Quantity (Units) 40,000 8,000,000 . 200,000 2,647,059 90 40,000 3,600,000 Sales in U.K. U.K. Costs Contract Labour (variable cost) Import of Coffee Machines (invoiced at 90 each) Marketing and Distribution Costs (assumed to be fixed costs) Other Fixed Costs: Overheads, Interest, Depreciation, Rent, Salaries, etc . 400,000 . 500,000 Profit (U.K. Subsidiary) 4,252.941 Or 5,784,000 Source: Company documents