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Chapter 8 Questions

Chapter 8 Questions - sell 20,000 pumps annually and marks...

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Chapter 8 Questions Q1 : True or False. The most difficult part of determining the profit-maximizing price is determining the supply function. (Section 8.1) A1 : False. Demand Function Q2: Company XYZ produces air conditioning systems. At a price of $4,000 per air conditioner, the quantity demanded is 800 units. The variable costs associated with the production of one air conditioner are $1,000 and fixed costs total $5,000,000. What is the company’s profit/loss? (Section 8.1) A2: $4,000 price $1,000 variable costs = $3,000 (contribution margin) $3,000 x 800 units demanded = $2,400,000 $2,400,000 - $5,000,000 fixed costs = $2,600,000 loss Q3: Company ABC produces hairdryers. To produce the Model XL hairdryer, the company must incur $2,000,000 of annual fixed costs and variable costs of $500 per unit. The company estimates that it can
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Unformatted text preview: sell 20,000 pumps annually and marks up cost by 30%. Using Cost-Plus Pricing, what price should the company charge for the Model XL hairdryer? (Section 8.3) A3: $2,000,000 fixed costs / 20,000 pumps = $100 fixed costs per unit $100 fixed cost per unit + $500 variable cost per unit = $600 total cost per unit $600 x 1.30 = $780 = price that should be charged Q4: True or False. It is commonly accepted that 80% of a product’s costs cannot be reduced once it is designed. (Section 8.4) A4: True. Q5: Zap It Company determines it can sell 100,000 microwaves at a price of $500 per unit. If Zap It wants to gain a profit of $300 from each microwave, what is the target cost per unit? A5: $500 - $300 = $200 target cost per unit...
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