Tuesday, November 8, 2011

Solution to Contest #12

Bigby Co. & Figetz Inc. are manufacturing competitors. They each sell their widgets for $45.00 a piece. Bigby's fixed costs are $101,900 a month. Figetz's fixed costs are 21.1% lower than Bigby's. Per widget, Figetz has a variable cost of 25.75% of the sale price. The cost is 3.5 percentage points more than Bigby's variable costs.

Bigby's fixed costs = $101,900 per month.
Figetz's fixed costs = $101,900 x (1 - 0.211) = $80,399 per month.
Figetz's variable cost = $45.00 x 25.75/100 = $11.59 per widget.
Bigby's variable cost = $45.00 x ( 25.75 - 3.50)/100 = $10.01 per widget

Last month, Bigby produced and sold 5,123 widgets. Figetz produced and sold 145 more widgets than Bigby.

Bigby's profit = 5,123 x ($45.00 - $10.01) - $101,900 = $77,354
Figetz's profit = (5,123 + 145) x ($45.00 - $11.59) - $80,399 = $95,605

Who made more profit and what was the % difference from the manufacturer who made the lower profit?

Figetz earned 23.6% more profit than Bigby:
($95,605 - $77,354) / $77,354 x 100%




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