Reference no: EM131670777
Problem - Bonita, Inc., and Windsor, Inc., are two companies in the pharmaceutical industry. Bonita has relatively high fixed costs related to research and development. Windsor, however, does little research and development. Instead, the company pays for the right to produce and market drugs that have been developed by other companies. The amount paid is a percent of sales. Thus, Windsor has relatively high variable costs and relatively low fixed costs:
Bonita Inc.
Sales: 140,488,000
Less Variable Costs: 35,122,000
Less Fixed Costs: 89,735,000
Profit: 15,631,000
Windsor Inc.
Sales: 162,876,000
Less Variable Costs: 97,725,600
Less Fixed Costs: 27,131,400
Profit: 38,019,000
Calculate the expected percentage change in profit for a 10 percent increase (or for a 10 percent decrease) in sales for each company.
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