A Project Has Expected Sales of 5,000 Units, a Selling

question 5

Essay

A project has expected sales of 5,000 units, a selling price of $29 a unit, variable costs equal to 60% of sales, fixed costs of $32,000, and depreciation of $9,500. Assume that total revenue can increase by 12%, variable costs can decrease to 58% of sales, and fixed costs can decrease by 5% in an optimistic situation. What would the pretax profits be, per year, if the optimistic situation should occur? Show your computations.

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Definitions:

Marginal Product

The additional output produced as a result of increasing one more unit of a single input, holding all other inputs constant.

Capital

Assets or resources that are used in the production of goods and services, including physical assets like machinery and buildings, as well as financial resources.

Marginal Revenue Product

The extra revenue generated by employing an additional unit of a factor, such as labor or capital.

Perfect Competitor

A theoretical market structure where numerous small firms sell identical products, and no single seller can influence the market price.