Movie Magic typically sells DVDs for $15 each. The DVDs cost Movie Magic $7 each. Assume...
- Movie Magic typically sells DVDs for $15 each. The DVDs cost Movie Magic $7 each. Assume that Movie Magic is approached by a new regional day care company that would like to make a one-time purchase of 500 DVDs. Since the day care company provides entertainment for its client children, it requires a wide selection of movies. Suppose that the day care company offers to pay $12 per DVD.
Assuming that the sale of DVDs will not interfere with sales to other customers, should Movie Magic the offer even though the selling price is below its normal price? What will be the impact on net if the offer is accepted?
Homework Answers
| Current selling price | 15 |
| Current cost price | (7) |
| Current profit per DVD | 8 |
New offer :
| New selling price | 12 |
| Cost price | (7) |
| Profit per DVD | 5 |
| Total profit for 500 DVD | $ 2500 |
As the current sales is not been effected by the new sales of 500 DVD , Movie magic company should accept the offer .
As this will lead to increase in net operating income by $2500.
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