Question

Pink Bunny Corporation manufactures a product with the following full unit costs at a volume of 2,000 units:

Direct materials $ 100
Direct labor 40
Manufacturing overhead 75
(40% variable)
selling expenses 25
(50% variable)
Administrative expenses 40
(10% variable)
Total per unit 280
A Company recently approached pink Bunny's management with an offer to purchase 150 units at a special price $250 each.Pink Bunny currently sells the product to dealers

Answer 1

To calculate total revenue, multiply the quantity by the selling price. Marginal revenue is the change in total revenue when one extra unit is sold. Total cost is the sum of fixed and variable costs. The profit-maximizing quantity occurs where marginal revenue equals marginal cost.

Step-by-step explanation:

To calculate the total revenue, we multiply the quantity of each output level by the selling price of $72. Marginal revenue is the change in total revenue when one extra unit is produced and sold. For example, the marginal revenue from selling the second unit is $72, which is the same as the selling price.

Total cost is the sum of fixed costs and total variable costs. Marginal cost is the change in total cost when one extra unit is produced. For example, the marginal cost from producing the third unit is $30.

The profit-maximizing quantity of output occurs where marginal revenue equals marginal cost. Based on the data provided, this occurs when producing four units.