Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 22 Jul 2017 My Price 9.00

competitive business strategy

Using fixed cost as a competitive business strategy

The following income statements illustrate different cost structures for two competing companies.

Income Statements
 

Company Name
 

Vector

Sector

Number of customers (a)

70

70

Sales revenue (a x $200)

$14,000

$14,000

Variable cost (a x $160)

N/A

(11,200)

Variable cost (a x $0)

0

N/A

Contribution margin

14,000

2,800

Fixed cost

(11,200)

0

Net income

$2,800

$2,800

Required

a. Reconstruct Vector’s income statement, assuming that it serves 140 customers when it lures 70 customers away from Sector by lowering the sales price to $120 per customer.

b. Reconstruct Sector’s income statement, assuming that it serves 140 customers when it lures 70 customers away from Vector by lowering the sales price to $120 per customer.

c. Explain why the price-cutting strategy increased Vector Company’s profits but caused a net loss for Sector Company.

Answers

Maurice Tutor
(5)
Status NEW Posted 22 Jul 2017 08:07 PM My Price 9.00

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