The Auckland Company is launching a new product. Sales volume will be dependent on the selling price and customer acceptance but because the product differs substantially from other products within the same product category it has not been possible to obtain any meaningful estimates of price/demand relationships. The best estimate is that demand is likely to range between 100 000 and 200 000 units provided that the selling price is less than £100. Based on this information the company has produced the following cost estimates and selling prices required to generate a target profit contribution of £2 million from the product.
|
Sales volume (000’s) |
100 |
120 |
140 |
160 |
180 |
200 |
|
Total cost (£000’s) |
10 000 |
10 800 |
11 200 |
11 600 |
12 600 |
13 000 |
|
Required profit contribution (£000’s) |
2 000 |
2 000 |
2 000 |
2 000 |
2 000 |
2 000 |
|
Required sales revenues (£000’s) |
12 000 |
12 800 |
13 200 |
13 600 |
14 600 |
15 000 |
|
Required selling price to achieve |
||||||
|
target profit contribution (£) |
120.00 |
106.67 |
94.29 |
85.00 |
81.11 |
75.00 |
|
Unit cost (£) |
100.00 |
90.00 |
80.00 |
72.50 |
70.00 |
65.00 |