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Hi, please i have asked this question once and you asked me if i watched the lecture video on the profits on the pay-off table. Yes i did. I got to understand that profit = selling price* the quantity gives total sales less total cost of purchase. The purchase decision which is on the horizontal axis, while the sales demand on the vertical axis. 10, 20 and 30 cases.
My question is still on chapter 10 of the note. The unit cost for John is $6, while is normal selling price is $11. He has been approached by a customer who is prepared to contract to a fixed quantity per month at a price of $9 per unit.
Profit= $9*300units= $2,700 -($6*400)
$ 2,700-2,400= $300, while you got $2,900. I don’t understand how you got $2,900. I went back to multiply the 300 units with his normal selling price $11,still didn’t get it. Please, i need an explanation to the pay-off table. ThanksPlease don’t post the same question twice.
In future you must ask in the ask the tutor forum if you wish for me to answer – this forum is for students to help each other.
First, the maximum they can ever sell is 1,200 (the maximum production. Second, they will only produce the number they will sell.
If the have signed a contract for 300, then they well sell 300 at $9 = 2700.
If normal customers demand 400, then they will sell them 400 at $11 = 4,400.So the total revenues is 7,100 and the total sales are 700 units.
So they will produce 700 at a cost of $6, which is 4,200So the profit is 7,100 – 4,200 = 2,900
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