How much would Calibrated’s weekly profits increase if it expanded to meet the entire amount of its current excess demand?
Question 1:
$CM (before) = $20-$10 per unit
New Variable Cost = $5 + ($5 x 1.2) = $11
$CM (after expansion) = $20 – $11 = $9 per unit
Increase in Total Contribution Margin (9 x 4000)           $36,000
Less Increase in Fixed Costs          (8 x 1500)  -$12,000
Net Profit Contribution from Expansion             $24,000
Prepare an analysis of a 10% price increase
Calculate the break-even sales quantity (percent and units)
Calculate the new $ contribution margin per unit
%CM = 9/20 = .45 or 45%
Basic $BE = -10/45 + 10 = -.10/55 = -.18.18 or -18.2%
Unit BE = -.1818 x 14,000 = -2548 units
Notice that I have used a baseline of 14,000 units since this represents the demand at current price.  You must also consider that a reduction in sales of this size enables the company to avoid five increases in semi-fixed costs (at $1,500 each) because 2500 fewer units of capacity would be required.  To calculate the new dollar contribution margin per unit.  It is $11: the new price, $22, minus the relevant variable costs, $11.  The resulting break even which considers the semi-fixed costs would be:
Unit BE = -2548 + -5 x $1,500/11 = -3230 units
This indicates that the company can avoid still another 500 units of semi-fixed cost, so the final equation would be:
Unit BE = -2548 + -6 x $1,500/11 = -3,366 units
What risks might be to Calibrated of increasing price to maximize profit?

What risks might there be to Calibrated of expanding output rather than reducing demand through a price increase.