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Let us assume the linear relationship between price and quantity:
Qty Sold = 750,000 + [{($.24.5- New Price)/($24.5 -$22.50)} X 250,000] = 750,000 + {($.24.5- New Price) X 125,000}
When price is $20.6, the quantity is 1,242,425 and profit is $101, we come near to break even point.
To sum up, if Superior reduces the price of product 101, its profit will increase significantly to breakeven.
Q.3 Why Superior Improved Profitability during the period January 1 to June 30, 2005? How useful was the data in Exhibit 4 for the purpose of this analysis?
From Exhibit 4, we can see that the actual expenses are less than the standard ones, so the reductions from those expenses lead to the improved profitability...
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