The Precision Writing Instruments Company makes two pen designs - the Cordova design and the Savannah design. These data apply, regardless of which of two pen designs is being implemented. Materials cost per pen is $6. Labour cost per pen is $5. Production overhead is $1,000,000. Advertising and promotion is $1,000,000. Marketing research has estimated the following demand functions for the next year of sales for the two pen designs where Q represents demand in thousands and P represents price. For the Cordova design, Q
150 - 2.5P. For the Savannah design, Q = 175 - 2.1P. A penetration strategy is proposed for the Savannah design and a price of $25 is selected. What will be the profit or loss for the first year?
A.
$285,000 loss
B.
$306,250 loss
C.
$2,112,500 profit
D.
$2,222,500 profit
Answer: =A
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