SLP Corporation Produces and Sells a Single Product for $15

question 10

Essay

SLP Corporation produces and sells a single product for $15 per unit. Variable cost per unit is $6 and total fixed costs currently are $18,000. SLP's owner, Lee Cord, can decrease variable cost per unit to $4 if he increases total fixed costs by 20%, with no change in product price or demand. Lee normally sells 3,000 units each month.
a)Calculate total expected profit under current conditions.
b)Calculate total expected profit under the proposed new conditions.
c)Calculate the indifference point (in units)between the two alternatives.
d)If Lee expects his monthly sales (in units)to increase by 30% within two months, should he stay with his current cost structure or move to the proposed new structure? Justify your answer with appropriate computations.

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Definitions:

Objective Determination

A decision made based on unbiased evidence and facts, without influence from personal feelings or opinions.

Consideration

An essential element in contract law, referring to something of value exchanged between parties as part of an agreement.

Consideration

In contract law, the value (which could be an object, service, money, or promise) that is given in exchange for a promise or performance by another party.

Adequacy

The quality or state of being sufficient, suitable, or appropriate for a particular purpose.