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?

Answers

Answer 1
Answer:

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= ?

Answer:

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

Which of the following is not an assumption economists make when using the model of perfect competition? Group of answer choices There is easy entry and exit. Each firm sets it price equal to its average total cost. The products of each firm in a particular market are identical. Firms seek to maximize profits.
Javonte Co. set standards of 2 hours of direct labor per unit of product and $15.80 per hour for the labor rate. During October, the company uses 12,100 hours of direct labor at a $193,600 total cost to produce 6,400 units of product. In November, the company uses 16,100 hours of direct labor at a $258,405 total cost to produce 6,800 units of product. AH = Actual Hours SH = Standard Hours AR = Actual Rate SR = Standard Rate (1) Compute the direct labor rate variance, the direct labor efficiency variance, and the total direct labor cost variance for each of these two months. Classify each variance as favorable or unfavorable. (2) Javonte investigates variances of more than 5% of actual direct labor cost. Which direct labor variances will the company investigate further?
Here is some price information on Fincorp stock. Suppose that Fincorp trades in a dealer market. Bid Ask 55.25 55.50 a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed
Divine Apparel has 2,600 shares of common stock outstanding. On October 1, the company declares a $0.25 per share dividend to stockholders of record on October 15. The dividend is paid on October 31. Record all transactions on the appropriate dates for cash dividends.
Breon works as a clerk in the human resources department for her company for which she receives an hourly rate of $6.50. Occasionally she fills in for the receptionist at the front desk and receives a $1.50 per hour differential. During a weekly pay period, she worked 31 hours in the human resources department and 9 hours at the front desk. What is Breon's gross pay for the week

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

Answers

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

Answers

Answer:

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?

Answers

Answer:

$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

Answers

Answer:

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

Answers

Answer:

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.

Answers

Answer:

The correct answer is letter "A": the five forces framework.

Explanation:

Porter's Five (5) Forces is an analysis scheme created by American economist Michael E. Porter (born in 1947). The ultimate goal of this analysis is to help managers set their expectations of profitability because as competition increases, profitability decreases. Three of the five forces relate to those involved in the industry. The other two apply to the suppliers, the vertical participants, and consumers.

Other Questions