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18 June, 06:05

Einstein Motors, has a capacity to produce 25,000 electric cars. Due to a temporary subsidy announced, there is a sudden increase in demand. Einstein decides to adopt peak-load pricing and charge a premium of 25% over its normal selling price of $2,000. It has already accepted orders for 20,000 units at normal selling price. What is the total contribution to the company on sale of additional 5,000 units if the variable cost per unit is $900?

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  1. 18 June, 08:42
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    Total Contribution margin: 107,500,000

    Explanation:

    Contribution: sales revenue - variable cost

    normal price 5,000

    peak-load price: 5,000 + 20% = 5,000 x 1.2 = 6,000

    revenue

    20,000 units at 5,000 100,000,000

    5,000 untis at 6,000 30,000,000

    Total revenue 130,000,000

    variable cost:

    25,000 units x 900 = (22,500,000)

    Total Contribution margin: 107,500,000
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