What is the minimum price?
A wine manufacturer is operating at full capacity. The selling price is £5.00 per bottle; the variable costs are £1.00 per bottle.
An additional order of 1,000 new size bottles is requested. This will require variable costs of £2,000 and fixed costs of £1,000 and will take up existing capacity. The minimum price per bottle for this order will be:
a) £4
b) £5
c) £6
d) £7
An additional order of 1,000 new size bottles is requested. This will require variable costs of £2,000 and fixed costs of £1,000 and will take up existing capacity. The minimum price per bottle for this order will be:
a) £4
b) £5
c) £6
d) £7
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Original post by dan94adibi
A wine manufacturer is operating at full capacity. The selling price is £5.00 per bottle; the variable costs are £1.00 per bottle.
An additional order of 1,000 new size bottles is requested. This will require variable costs of £2,000 and fixed costs of £1,000 and will take up existing capacity. The minimum price per bottle for this order will be:
a) £4
b) £5
c) £6
d) £7
An additional order of 1,000 new size bottles is requested. This will require variable costs of £2,000 and fixed costs of £1,000 and will take up existing capacity. The minimum price per bottle for this order will be:
a) £4
b) £5
c) £6
d) £7
I'm not entirely sure.
It seems to be asking how much you would have to charge for this new order in order for it to be preferential over continuing to sell the old bottles.
The old bottles made a profit of £4 per bottle. In order to match that, the new bottles would have to be sold for £7 as costs are £3 per bottle, assuming the fixed costs are an additional fixed cost (it doesn't say), if they're not and they equally apply to both orders, then the answer would be £6.
Alternately, if the previous order had ended, then you would just want to make any +ve profit, then the answer would be £3, but seeing as that isn't an option then I think they want you to make the first assumption.
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