Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

To be profitable, a firm must recover its costs. These costs include both its fixed and its variable costs. One way that a firm

image text in transcribed

To be profitable, a firm must recover its costs. These costs include both its fixed and its variable costs. One way that a firm evaluates at what stage it would recover the invested costs is to calculate how many units or how much in dollar sales is necessary for the firm to earn a profit. Consider the case of Blue Mouse Manufacturers: Blue Mouse Manufacturers is considering a project that will have fixed costs of $10,000,000. The product will be sold for $32.50 per unit, and will incur a variable cost of $10.75 per unit. Given Blue Mouse's cost structure, it will have to sell units to break even on this project (QBE). Blue Mouse Manufacturers's marketing sales director doesn't think that the market for the firm's goods is big enough to sell enough units to make the company's target operating profit of $20,000,000. In fact, she believes that the firm will be able to sell only about 150,000 units. However, she also thinks the demand for Blue Mouse Manufacturers's product is relatively inelastic, so the firm can increase the sale price. Assuming that the firm can sell 150,000 units, what price must it set to meet the CFO's EBIT goal of $20,000,000? O $242.36 per unit O $263.44 per unit O $210.75 per unit O $221.29 per unit What affects the firm'

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles of managerial finance

Authors: Lawrence J Gitman, Chad J Zutter

12th edition

9780321524133, 132479540, 321524136, 978-0132479547

More Books

Students also viewed these Finance questions

Question

4. Analyzing: Breaking something down into its parts.

Answered: 1 week ago