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Bushwacker Corp. has fixed costs of $2,000,000 and average variable costs of $100 per unit at all levels of output. It wishes to earn a profit of $300,000 this year. Assume this year Bushwacker expects to sell 5,000 units of its product.
a) Use the cost based pricing method to determine what price Bushwacker should charge for its product.
b) Suppose, at the price determined above, Bushwacker were only able to sell 4,000 units this year because of increased competition. What would its profit (or loss) be?
c) Suppose, at the price determined above, Bushwacker's actual sales this year was 7,000 units. What would its profit (or loss) be?
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