Can someone explain this calculation?

Wall Inc.
New answer on Feb 11, 2020
1 Answer
2.3 k Views
Ameya asked on Feb 11, 2020

How much market share can the client lose before reducing the price by 20% becomes an option?

Overview of answers

Upvotes
  • Upvotes
  • Date ascending
  • Date descending
Best answer
Ian
Expert
Content Creator
replied on Feb 11, 2020
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi Ameya,

So what they're basically saying is, what is the reduced profit from cutting price by 20%?

Then, what is the equivalent amount of change in units sold that would get you the same reduction in profit (essentially saying you would reduce price to keep selling the same amount of units).

You're basically palying aroudn with different variables in a breakeven equation:

Break even quantity = Fixed costs / (Sales price per unit – Variable cost per unit)

Was this answer helpful?
Anonymous A on Mar 20, 2022

break even quantity= FC/(sp-VC)= 300,000/(10-4)= 50,000 units. How come it is 66.6666 units?

Tushar on Dec 05, 2022

I think the answer should be we can reduce the units by 66,666 number as when we reach 33,333 units our profit/unit which is 10$ in Rev- 4$ in VC -3% in FC = 3$ multiplied by 33,333 =~100K in profit is equal to what we can achieve if we reduce the price i.e. 8$ in price -4$ in VC-3$ in FC =1$ profit/unit *100K units=100K in profit So we can reduce our volume by 66% and not 33%

Ian gave the best answer

Ian

Content Creator
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate
1,095
Meetings
77,226
Q&A Upvotes
232
Awards
5.0
151 Reviews
How likely are you to recommend us to a friend or fellow student?
0
1
2
3
4
5
6
7
8
9
10
0 = Not likely
10 = Very likely