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?
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%