201-SELF STUDY PROB-WEEK 7-S'12

# 201-SELF STUDY PROB-WEEK 7-S'12 - "&&/01'2&...

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Unformatted text preview: !"# % &'() &*+,- ./01('2& 3 &0(+*405& 3 6''7 8 8%!"9 8%!:9 8%!89 8%!;9 8%<= .>[email protected] 8%!" DEBFGH?I [email protected]?EG KHLLB>BIG M?CNJIHBF OHGP FJCB )Q JIK RQ 7-20 The low-price company must have a larger sales volume than the high-price company. By spreading its fixed expense across a larger sales volume, the low-price firm can afford to charge a lower price and still earn the same profit as the high-price company. Suppose, for example, that companies A and B have the following expenses, sales prices, sales volumes, and profits. Company A Company B Sales revenue: 350 units at \$10 ............................................... 100 units at \$20 ............................................... Variable expenses: 350 units at \$6 ................................................. 100 units at \$6 ................................................. Contribution margin ............................................. Fixed expenses ..................................................... Profit ...................................................................... \$3,500 2,100 \$1,400 1,000 \$ 400 \$2,000 600 \$1,400 1,000 \$ 400 .>[email protected] 8%!: ,>JO QR. S>JNP JIK M?CNEGB @>BJT%BUBI EXERCISE 7-26 (25 MINUTES) 1. Cost-volume-profit graph: Break-even point: 20,000 tickets Total revenue Total expenses Variable expense (at 30,000 tickets) Annual fixed expenses Tickets sold per year 5,000 10,000 15,000 20,000 25,000 30,000 Dollars per year \$300,000 \$250,000 \$200,000 \$150,000 \$100,000 \$50,000 Profit area Loss area • EXERCISE 7-26 (CONTINUED)...
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201-SELF STUDY PROB-WEEK 7-S'12 - "&&/01'2&...

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