To solve the different scenarios for the Golden Chicken Company we must understand first what is the current

profit and operations of the company, and to perform this we evaluate the structure of the current profits that is as follows: Profit=Revenue-Cost Revenues: The current flow of revenues derives from the sell of eggs to the wholesalers Existing demand is Q=1000 units/day, and the current price is $6/case From this we obtain the following revenue: Revenue(R)=Price(P) * Quantity(Q) R=$6*1,000= $6,000.00 Costs: The costs that Golden chicken company has are related to transportation and raw materials. Raw materials: the cost per case up to 1,000 is $3.00 and as this point, demand is fixed, we will not incur in additional costs to bring eggs from outside suppliers. RMc= 1000 * $3.00 = $3,000.00 Transportation: An agreement with a transportation company allows us to distribute our products, we can transport up to 50 cases per truck at a cost of $50.00 per route.

To transport the 1,000 eggs that we have as current demand we will require 1,000 units/ 50 units/truck = 20 trucks Trc= 20 * $50.00 = $1,000.00 We obtain the total cost by adding the Raw material and transportation cost and we obtain: TC= $3,000.00 + $1,000.00 = $4,000.00 Profit: The initial profit is: P=R-C = $6,000.00 - $4,000.00 = $2,000.00

Case A The wholesale price of a case of eggs increase to $6.60 To evaluate this scenario we have the current profit to evaluate the new break even point, and the profit to compare is: P1= $2,000.00 For this scenario we expect a decrease in the demand as the price increases by 10%, therefore we would expect no need to buy additional eggs. Therefore we calculate the new quantity to be sold to obtain P1 P1= (Price*Quantity) - Transport cost new raw material cost new

$2,000 .00 = $6.6 * Qn (Qn/50)*$50 Qn*$3.00 $2,000.00 = $6.6Qn Qn - $3 Qn $2,000.00 = $2.6 Qn Qn = 770.00 units Case B The wholesale price of a case is reduced to $5.50 For this scenario we will consider the initial profit as our comparison point. Under these circumstances we will assume that demand will be higher than the original 1000 units, therefore there is a possibility to buy additional eggs from external suppliers at a cost of $4.00 per case. To calculate the maximum profit with the existing demand at the new price we perform the following calculation: Cost Tc= (1000/50)*50 = $1,000.00 Rmc= 3*1000= $3,000.00 TC= $4,000 Revenue R=$5.50 * 1000= $5,500.00 Profit = $5,500 - $4,000 = $1,500.00

From this calculation we derive that in order to arrive to a break even point we need to earn additional $500.00 from the external supply to match our initial profit of $2,000.00 We can calculate the additional sales as follows Profit=Revenues-cost $500= $5.5Qn (Qn/50)*$50 - $4.00 Qn $500= $0.5Qn Qn = 1000 units This means that in order to break even in this situation the new quantity to be order is 2,000 units, from which 1,000 will come from external suppliers. Case C How would you answer this if the current sales level is 800 units. To solve this new scenario we require to run the same steps as per the case B Cost Tc= (800/50)*50 = $800.00 Rmc= 3*800= $2,400.00 TC= $3,200 Revenue R=$5.50 * 800= $4,400.00 Profit = $4,400 - $3,200 = $1,200.00

From this calculation we derive that in order to arrive to a break even point we need to earn additional $800.00 from the external supply to match our initial profit of $2,000.00 We can calculate the additional sales as follows Profit=Revenues-cost $800= $5.5Qn (Qn/50)*$50 - $4.00 Qn $800= $0.5Qn Qn = 1600 units This means that in order to break even in this situation the new quantity to be order is 2,400 units, from which 1,600 will come from external suppliers.