Marketers estimate that the variable cost of manufacturing a new PlayStation will be $85.00 per unit. The selling price of the product is to be $180.00. The fixed costs applicable to the new PlayStation are $1,100,000 per year and capacity per year is 70,000 units.

a) Calculate net profit at 75% of capacity.

b) If we want total revenue to be $2,340,000, what should we expect as a profit? c) Calculate the maximum net profit possible. d) If we want net profit to be $20,000, how many units must be sold?

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The formula to calculate the net profit (also called net income) is selling price - cost price divided by selling price times 100:

`(SP - CP)/(SP) times 100`

The SP is $180 each and the company is operating at 75% capacity:

`therefore 75/100 times 70000=52500` units being made.

Therefore selling 52500 units at $180 each renders $9450000.

The CP relates to the expenses:

`$85 times 52500= 4462500` (variable cost) and $1 100 000 fixed costs.

`therefore NP= (9450000-(4462500 + 1100000))/9450000 times 100`

`therefore NP=41.14%` (rounded to 2 decimal digits)

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**Ans:The net profit is $41.14%**

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