Effects of raising selling prices
Instruction: The following problems should be solved both manually and in excel to get credit. You can write your manual calculation (including formulas) in the excel file or you can solve it clearly on a piece of paper and make a nice and clear photo and paste in on the excel file.
Allocate a separate sheet for each problem and name each sheet the problem number.
For example in this homework you have 4 problems you need to have four sheets in one excel file.
When you finished, save the excel file with homework number and your initials. (for instance (Homework1_SK) upload it on BB.
Problem 1- Farris Billiard Supply sells all types of billiard equipment, and is considering manufacturing their own brand of pool cues. Mysti Farris, the production manager, is currently investigating the production of a standard house pool cue that should be very popular. Upon analyzing the costs, Mysti determines that the materials and labor cost for each cue is $25, and the fixed cost that must be covered is $2,400 per week. With a selling price of $40 each, how many pool cues must be sold to break even? What would the total revenue be at this break-even point? (25 points)
Problem 2- Mysti Farris (see Problem 1) is considering raising the selling price of each cue to $50 instead of $40. If this is done while the costs remain the same, what would the new break-even point be? What would the total revenue be at this break-even point? (25 points)
Problem 3- Mysti Farris (see Problem 1) believes that there is a high probability that 120 pool cues can be sold if the selling price is appropriately set. What selling price would cause the break-even point to be 120? (25 points)
Problem 4- Golden Age Retirement Planners specializes in providing financial advice for people planning for a comfortable retirement. The company offers seminars on the important topic of retirement planning. For a typical seminar, the room rental at a hotel is $1,000, and the cost of advertising and other incidentals is about $10,000 per seminar. The cost of the materials and special gifts for each attendee is $60 per person attending the seminar. The company charges $250 per person to attend the seminar as this seems to be competitive with other companies in the same business. How many people must attend each seminar for Golden Age to break even? (25 points)
Sample Solution
There are different reasons why Business owners raise company prices or individual product or service prices. In some cases, price increases relate to a strategic plan of becoming a higher-quality brand. Other times, increases result from higher costs that the business passes on to customers. As a business owner, you need to weigh the potential implications a price increase can have on sales volume. The relative change in sales volume isn’t the only economic consideration in a price change. If the relative change in demand pales in comparison to the benefit of increase revenue per unit, the price change makes economic sense.
