Assume now an alternative scenario for the product in Case A. The same cost schedule applies but the £2 million minimum contribution no longer applies. In addition, Auckland now undertakes market research. Based on this research, and comparisons with similar product types and their current selling prices and sales volumes, estimates of sales demand at different selling prices have been made. These estimates, together with the estimates of total costs obtained in Case A are shown below:
|
Potential selling price |
£100 |
£90 |
£80 |
£70 |
£60 |
|
Estimated sales volume at the potential selling price (000’s) |
120 |
140 |
180 |
190 |
200 |
|
Estimated total sales revenue (£000’s) |
12000 |
12600 |
14400 |
13300 |
12000 |
|
Estimated total cost (£000’s) |
10800 |
11200 |
12600 |
12800 |
13000 |
|
Estimated profit (loss) contribution |
|||||
|
(£000s) |
1200 |
1400 |
1800 |
500 |
(1000) |