Normal price of mini-scooters are $120 per scooters, ABC estimates 400,000 scooters to be sold for Year 2013.
Material costs are $20,0000 per year to produce these scooters.
Variable costs are $10.00/per mile delivery and $50.00/scooter for handling charges.
ABC is approached by Pleasure travel to purchase 5000 scooters but they want a special price of $100/per mini-scooter instead of $120, and this would require 5000 delivery miles and 750 separate handing fees as storage and warehousing is required during shipment. What would the profit or loss be from this discount order if ABC accepts the order?
To calculate the profit or loss from the discount order, we need to consider the revenue from selling the scooters, the costs of producing and delivering them, and the handling charges. Let's break it down step by step:
1. Revenue: ABC is selling 5,000 scooters at a discounted price of $100 per scooter. The revenue from this order would be calculated by multiplying the number of scooters by the price per scooter:
Revenue = 5,000 scooters * $100/scooter = $500,000
2. Material Costs: The material costs are provided as $20,000 per year. However, we need to calculate the cost per scooter for this order. To do that, we divide the total material cost by the number of scooters sold:
Material Cost per Scooter = $20,000/400,000 scooters = $0.05
The material cost for 5,000 scooters would be:
Material Cost = 5,000 scooters * $0.05/scooter = $250
3. Variable Costs: The variable costs consist of delivery costs and handling charges.
- Delivery Costs: The delivery costs are $10 per mile. Since the order requires 5,000 miles of delivery, the total delivery costs would be:
Delivery Costs = 5,000 miles * $10/mile = $50,000
- Handling Charges: The handling charges are $50 per scooter. As there are 5,000 scooters in this order, the total handling charges would be:
Handling Charges = 5,000 scooters * $50/scooter = $250,000
4. Total Costs: Now that we have calculated the material costs, delivery costs, and handling charges, we can calculate the total costs:
Total Costs = Material Costs + Delivery Costs + Handling Charges
Total Costs = $250 + $50,000 + $250,000 = $300,250
5. Profit or Loss: To determine the profit or loss, we subtract the total costs from the revenue:
Profit or Loss = Revenue - Total Costs
Profit or Loss = $500,000 - $300,250 = $199,750
Therefore, if ABC accepts the discount order for 5,000 scooters at $100 per scooter, they will have a profit of $199,750.