Question

5. Period 1: Firm A (Pre-merger) (20 points) Assumptions: • Price = $4 per unit of output sold • Variable costs = $2.75 per unit of output • Fixed costs = $1,000,000 • Firm A is producing 1,000,000 units of output per year • Firm A is producing at 50% of plant capacity Period 2: Firm A (Post-merger) Assumptions: • Firm A acquires Firm B which is producing 500,000 units of the same product per year Firm A closes Firm B's plant and transfers production to Firm A's plant Price = $4 per unit of output sold • Variable costs = $2.75 per unit of output • Fixed costs = $1,000,000 a. Find the pre-merger profit. Show your work (4-2.75)*1000000- 1000000-$250,000 b. Find the pre-merger profit margin. Show your work. 250,000/4000000-6.25% c. Find the pre-merger fixed cost per unit. Show your work. 1000000/1000000-$1 d. Find the pre-merger margin per dollar of revenue. Show your work. e. Find the post-merger profit. Show your work (4-2.75)*1500000-1000000- 6000000-4125000-1000000= f. Find the post-merger profit margin. Show your work. g. Find the post-merger fixed cost per unit. Show your work.1000000/1500000-$0.67 h. Find the post-merger margin per dollar of revenue. Show your work. 1. Explain the profit margin improvement. Show your work. Since Pre-merger is producing at 50% of plant capacity, it allows firm A to shut down firm B and run the production on its own. The improvement of profit margin is because the additional output transferred from firm B is mostly profit and adds nothing to firm A's fixed cost.
can anyone help me with Q d and e please? include work

Answer 1

Calculation as per the given data:

	Pre-Merger
	Price per unit	$4.00
	Variable Costs per unit	$2.75
	Fixed Costs	$1,000,000
	No. of units per year	1,000,000
	Plant capacity utilized	50.00%
	Plant capacity	2,000,000
	Post-Merger
	Price per unit	$4.00
	Variable Costs per unit	$2.75
	Fixed Costs	$1,000,000
	No. of units per year	1,500,000
		Pre-Merger	Post-Merger
A	Sale Price per unit	$4.00	$4.00
B	Variable Cost per unit	$2.75	$2.75
C = A - B	Contribution per unit	$1.25	$1.25
D	No. of units	1,000,000	1,500,000
E = A x D	Total Sales	$4,000,000	$6,000,000
F = B x D	Total variable cost	$2,750,000	$4,125,000
G = E - F	Total contribution	$1,250,000	$1,875,000
H	Fixed Costs	$1,000,000	$1,000,000
I = G - H	Profit	$250,000	$875,000
J = I / E	Profit Margin	6.25%	14.58%

4. The profit margin per dollar of revenue is that part of $1.00 which is earned by the company as profit. As calculated, the pre-merger margin is 6.25%. Hence, the profit margin per dollar is ($1.00 x 6.25%) i.e. $0.0625.

5. As seen in the above table, the post-merger profit is $875,000.

6. As seen in the above table, the post-merger profit margin is 14.58%.

7. As calculated, the post-merger margin is 6.25%. Hence, the profit margin per dollar is ($1.00 x 14.58%) i.e. $0.1458.