May I please ask how can we assume the fix cost is $300K? fixed cost per unit is $3, if we change the volume, the fixed costs= $3 * unit sold, is it correct?
thank you
Schedule mock interviews on the Meeting Board, join the latest community discussions in our Consulting Q&A and find like-minded Interview Partners to connect and practice with!
Back to overview
thank you for your quick response, Luca. in this case, I understand. However regarding the market share changes, I'd like to under stand why we make the profit equals to 100,000? I calculated the profit margin would be 1/3.
thank you
Because in this case the market share is calculated considering the volumes of units sold
Be the first to answer!
Nobody has responded to this question yet.
Hi JIE,
This case is a bit misleading. It really should be contribution margin. That is, at x rate of production, what is the marginal FC per unit sold.
Of course, this changes as you change # of units.
Hello JIE,
You are right, the text of the case is quite confusing on that.
I think that the "fixed cost/Unit=3$" is just the incidence of the fixed costs per unit sold (total fixed costs/total volume). By definition fixed costs can not be strictly correlated with volumes. For that reason, once that you calculate the fixed costs as 3$/unit*100,000units=300k$, you can assume that they do not vary for the rest of the case.
Is that clear?
Best,
Luca
Hello!
Agree, misleading wording.
Important concepts here:
- FIXED COSTS. they don´t vary with the output
- FIXED COST/UNIT: this refers to the 3 USD in the case. These are the total fixed costs/total units, hence, the allocation of total fixed cost per each unit. The more you produce, the smaller this number will be
Hope it helps!
Cheers,
Clara
Sign up for free to read all answers.
Sign up for free to read all answers.
