Question 12.SS.1: The Scoot-2-Go Company is the brainchild of Charles Johnson....
The Scoot-2-Go Company is the brainchild of Charles Johnson. Charles has designed a unique three-wheel scooter that collapses and fits in its own knapsack. He is thinking about implementing the idea and going into production. Charles estimates that the fixed costs of producing between 1,000 and 3,000 scooters will be $50,000 annually. In addition, the variable cost is estimated to be $40 per scooter. Charles could outsource the knapsack production, which would reduce the fixed costs to $40,000 annually and the variable costs to $37 per scooter. If Scoot-2-Go makes fewer than 2,000 three-wheel scooters, excess capacity would exist that could be used to make 1,000 regular two wheel scooters. There would be no additional fixed costs and the variable costs would be $60 per two-wheel scooter. No other use exists for the space.
a. Charles would like to make $60,000 annually on this venture. If Charles makes and sells 3,000 three-wheel scooters (with the knapsack), what price should he charge for each scooter?
b. If Charles decides to charge $80 per three-wheel scooter while making the knapsack, what is the break-even number of three-wheel scooters?
c. If Charles makes 2,500 three-wheel scooters, should he consider buying the knapsacks from an outside supplier if the supplier’s price per knapsack is $10?
d. If Charles only makes and sells 2,000 three-wheel scooters because of limited demand, what is the minimum selling price that he should consider for 1,000 two-wheel scooters built with the excess capacity?
