Brisbun and Adlayde are two companies selling similar products in a competitive market. While their profitability is
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Question:
Brisbun and Adlayde are two companies selling similar products in a competitive market.
While their profitability is similar, their cost structure is different.
The summary results for each company are shown below.
BrisBun | Adlayde | |
Sales | ||
10,000 units @$20 | $ 200,000.00 | $ 200,000.00 |
Less variable costs: | ||
10,000 @$10 | $ 100,000.00 | |
10,000@$5 | $ 50,000.00 | |
Less fixed costs: | $ 75,000.00 | $ 125,000.00 |
Profit | $ 25,000.00 | $ 25,000.00 |
(a) Calculate the contribution per unit and the break-even point in both units and sales value for each company.
(b) Which company has the highest risk? Explain why this is so.
(c) Which company is likely to make the highest return if sales exceed 10 000 units?
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