Hi there,
Fair question! So, because we are losing revenue from price reduction, we need to make up for this by gaining revenue from warranty sales.
This is a classic breakeven!
So, first, create the full formula, and then pulg-in what's missing.
- Profit from warranty* % quantity sold = Profit loss from car
- (Revenue from warranty - expected cost from warranty) * quantity sold = Profit loss from car
- (2,350 - 1,100) * quantity sold = $1,000
- 1,250 * quantity sold = $1,000
- Quantity sold = 1,000/1,250 = 80%
Thank you very much for your answer Ian! Now it's very clear. I guess then it is just the quantity of warrants represented as a percentage (multiplied by 100). I'm used to seeing x as a percentage of y, not standing alone. So in this case I would see this % as the loss from car being 80% of profits from the warranty, so we have to compensate with 80% more sales. Is it common for quantity sold being asked as a percentage?