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?

Question

Kathryn Shea

Business

11 July, 00:17

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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Juliet Henry · Answer 1

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