# Suppose the farm equipment manufacturer from the previous question was able to charge \$30,000 per tractor, and produces and sells 2,000 tractors per year at that price. As a reminder, the company originally spent \$3 million in research and development costs. The company now spends \$20 million at the beginning of each year to rent a factory, and \$10,000 per tractor in materials and wages. If another manufacturer enters the market in the middle of a year and engages the company in a price war, what is the lowest price the company would be willing to charge for each tractor?

Given Information:

Rent = \$20,000,000

Materials and Wages = \$10,000/tractor

Number of tractors = 2,000

Amount spent on R&D = \$3 million

Required Information:

Lowest price to sell atractor= ?

Lowest price to sell atractor= at least \$20,000

Calculations & Explanation:

The company needs to sell at least at a price that all of its manufacturing cost can be recovered without the profit margin.

This happens at a break-even point where total revenue equals the total manufacturing cost.

Total manufacturing cost = Total revenue

The revenue is number of tractors multiplied by some price x

Total revenue = 2,000*x

Total manufacturing cost = fixed cost + Variable cost

Total manufacturing cost = 20,000,000 + 2,000(10,000)

Total manufacturing cost = 20,000,000 + 20,000,000

Total manufacturing cost = 40,000,000

so,

Total manufacturing cost = Total revenue

40,000,000 = 2,000*x

x = 40,000,000/2,000

x = \$20,000

Therefore, the lowest price to sell each tractor should be atleast \$20,000

Note: The R&D cost is not usually included in such scenarios because R&D cost is sunk and should not be added in these calculations.

## Related Questions

Tina is an expert gardener. she provides services like setting up new gardens, maintaining gardens, and landscaping. in the context of service processes, the services provided by tina come under the category of

Based on the given description, Tina’s services fall into the category of possession processing services.

Possession processing service is defined as providing a service to goods or other physical possessions that the customer owns.

Thus, because Tina provides a service to people’s garden, her service falls into this category. Other examples for possession processing service include shoe cleaning service, plumbing, and housekeeping.

b. True or false: an income elasticity of demand of 0.45 for all medical products implies that consumption will be higher among low-income people than among high-income groups. Explain

False.

Explanation:

Elasticity of demand is a measure of the responsiveness of changes in demand to change in price.

The value of elasticity shows type of good. Negative elasticity indicates that a good is inferior, and people will buy it when their income is low. But once income rises they will buy more luxurious goods. That is not the case here as elasticity is positive.

When elasticity is positive the good is a normal good and increase in income will result in increase in amount demanded of the good.

In the scenario give a positive elasticity of 0.45 should result in higher consumption among higher income people than lower income people.

A company began its fiscal year with inventory of \$186,000. Purchases and cost of goods sold for the year were \$945,000 and \$982,000, respectively. What was the amount of ending inventory?

\$149,000

Explanation:

Data provided as per the question below

Cost of goods sold = \$982,000

Inventory = \$186,000

Purchase = \$945,000

The computation of amount of ending inventory is shown below:-

Cost of goods sold = Inventory + Purchase - Ending inventory

= \$982,000 = \$186,000 + \$945,000 - Ending inventory

= \$982,000 = \$1,131,000 - Ending inventory

= \$149,000

The following are budgeted data:Sales (units ) Production (units)April 15,000 18,000May 20,000 19,000June 18,000 16,000Two pounds of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs.Purchases of raw materials for May should be:a.36,800 poundsb.39,200 poundsc.52,000 poundsd.38,000 pounds

Total= 36,800 pounds

Explanation:

Giving the following information:

Sales (units ) - Production (units):

May: 20,000 - 19,000

June: 18,000 - 16,000

Two pounds of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs.

Purchases for May= production for the month + desired ending inventory - beginning inventory

Production= 19,000*2 pounds= 38,000 pounds

Desired ending inventory= (16,000*2)*0.2= 6,400 pounds

Beginning inventory= (38,000*0.2)= (7,600)

Total= 36,800 pounds

Retain the small predictable layers of risk and transfer the unpredictable catastrophic layer of risk. Does this statement promote appropriate risk financing decision making

Yes the statement does

Explanation:

Retaining small predictable layers of risk and transferring the unpredictable catastrophic layer of risk to a more capable body is a very good approach towards  promoting appropriate risk financing decision making, this is because

Financial risk decisions are decisions taken between alternatives i.e risks associated with business activities . it is more appropriate to take alternatives with a predictable layer of risk,that way it would be easier for the management to handle the risk associated with it, while transferring the unpredictable catastrophic layer of risk to a more capable body ,like the Insurance companies .

The most powerful and widely used conceptual tool for diagnosing the principal competitive pressures in a market isa. the five forces framework.b. PESTEL.c. the driving forces model.d. strategic group mapping.e. SWOT analysis.