Example of profit Range

Example of profit Range

There are two products which have maximum demand of 5000 units and minimum demand of 3000 units and company has a fixed cost of 50,000. The product has the following selling price and variable cost.

	Product A	Product B
Sales	150	170
Variable Cost	80	80
Maximum demand	5000 unit	5000 unit
Minimum Demand	3000 unit	3000 unit

Calculate the profit possibilities for Sara and co.

Solution

Contribution

Sales	150	170
Variable Cost	80	80
Unit Contribution	70	90

1. Favorable Condition (Maximum Demand)

	Unit contribution	Unit sold	Total Contribution
Product A	80	5000	40,000
Product	90	5000	45000
Total Contribution			85000
Fixed Cost			(50,000)
Profit			35,000

2. Minimum Demand Condition

	Unit contribution	Unit sold	Total Contribution
Product A	80	3000	24,000
Product	90	3000	27,000
Total Contribution			51,000
Fixed Cost			(50,000)
Profit			1,000

The company profit range will be between 35,000 and 1000 .