Question

Nike has decided to sell special high quality insoles for its line of basketball tennis shoes. It has fixed costs of $6 million and unit variable costs of $5 per pair. Nike would like to earn a profit of $2 million; how many pairs must they sell at a price of $15? a. 100,000 kits b. 200,000 kits c. 600,000 kits d. 800,000 kits e. 1,400,000 kits

Answer 1

option (d) 800,000

Explanation:

Let the number of pairs that must be sold be 'x'

Thus,

Total variable cost for x units = $5x

Therefore,

Total cost = Fixed cost + Total variable cost

= $6 million + $5x

Now,

Profit = Cost - Revenue

Thus,

$2 million = $15x - ( $6 million + $5x )

or

$2 million + $6 million = $10x

or

$8 million = $10x

or

$8,000,000 = $10x

or

x = 800,000

Hence,

option (d) 800,000