Greentown Industries sells its transport services at range of prices to five dissimilar customer groups. The company has fixed costs of £150,000 per year. The average variable costs for each transport service, irrespective of the customer group, are £7. The Table below shows the prices charged to each customer group and quantity of transport services which are currently sold at that price.
|
Customer group
|
Selling price
|
Quantity
|
|
Multinational
|
£19
|
13,000
|
|
Corporate
|
£20
|
12,500
|
|
Small business
|
£21
|
12,000
|
|
Government
|
£22
|
11,000
|
|
Private
|
£23
|
10,000
|
a. If average selling price is £21, compute the breakeven point in quantity and money terms and sketch a rough sketch of the cost-volume-profit (CVP) graph which shows the relationships between the elements of the CVP.
b. Ignoring any market demand or capacity drawbacks, compute the optimum selling price for Greentown Industries and recognize which customer group is most profitable.
Employ the following information to answer part (c) suppose that the maximum market demand for each customer group is 20,000 transport services at same price as currently charged (see Table above).
As well suppose that Greentown's capacity limitation is 60,000 transport services.
c. Based upon the computation of optimum selling prices in (b) above but with capacity and demand assumptions taken in consideration, compute the maximum profits that Greentown can earn and customer mix and quantity by which that profit can be accomplished.
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