Professional Documents
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Given that current production and sales are: 2,000, 4,000, and 1,000 cases of 4, 8,
and 12 ounce bottles, construct of lotion bundle to consist of 2 cases of 4 ounce bottles, 4
cases of 8 ounce bottles, and 1 case of 12 ounce bottles. The following table calculates
the break-even number of lotion bundles to break even and hence the number of cases of
each of the three products required to break even.
We would rent out the Home Appliance department, as lease rental receipts are
more than the profits in the Home Appliance Department. On the other hand, profits
generated by the Television Department are more than the lease rentals if leased out, so
we continue running the TV Department. However, neither is being charged inventory
holding costs, which could easily change the decision.
Also, one should examine externalities. What kind of merchandise is being sold
in the leased store and will this increase or decrease overall traffic and hence sales in the
other departments?
c. At four units, the opportunity cost of producing and selling one more unit is
$4,700. At four units, total cost is $30,800. At five units, total cost rises to
$35,500. The incremental cost (i.e., the opportunity cost) of producing the fifth
unit is $4,700.
d. Vintage Cellars maximizes profits ($) by producing and selling seven units.
Average Total Total
Quantity Cost Cost Revenue Profit
a. The following table calculates that the average cost of the iPad bamboo case is
minimized by producing 4,500 cases per month.