Coffee Projectis considering the sale of promotional mugs. It can have the mugs produced by one of...

Question

Coffee Projectis considering the sale of promotional mugs. It can have the mugs produced by one of two suppliers. Supplier A will charge them a setup fee of Php13000 plus Php40 for each mug; Supplier B has no setup fee and will charge Php60 per mug. The company estimates its demand for mugs to be given by Q=32000-400P, where P is the price in Philippine peso and Q is the number of mugs (hint: the price equation is P=80-0.0025Q). In order to make sound decisions, the company’s management asked the assistance of their student trainees from DLS-CSB in assessing the cost and revenue implications of the promotional campaign.

Komalavalli · Accepted Answer

Demand equation 
Q=32000-400P
Let us assume the price per mug is 10 peso
Market demand for mug is
28000
Supplier 1 Total cost 13000+60*28000
Tc = 1693000
Total Revenue (TR) = 10*28000
TR=280000
Profitπ1=TR-TC 
Π1=280000-1693000
Π1=-1413000
Supplier 2
TC=60*28000
TC=1680000
TR =280000
Profitπ2
Π2 = 280000-1680000
Π2 = -1400000
From Assessing the cost and revenue supplier 2 is most suitable for promotional activities because he doesn’t have to bear fixed cost compared to supplier 1 .

Coffee Projectis considering the sale of promotional mugs. It can have the mugs produced by one of two suppliers. Supplier A will charge them a setup fee of Php13000 plus Php40 for each mug; Supplier...

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