Explore BrainMass
Share

Explore BrainMass

    Calculating unit cost growth rate

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Nicholas Nickelby, a quality control supervisor for Vinyl Windows, Inc., is concerned about an increase in distribution costs per unit from $10 to $13.80 over the last four years. Nickelby feels that setting up a new direct-sales distribution network at a cost of $17.50 per unit may soon be desirable.

    A. Calculate the unit cost growth rate using the constant rate of change model with continuous compounding.
    B. Forecast when unit distribution costs will exceed the current cost of direct-sales distribution.

    © BrainMass Inc. brainmass.com October 10, 2019, 2:06 am ad1c9bdddf
    https://brainmass.com/economics/microeconomics/calculating-unit-cost-growth-rate-363063

    Solution Preview

    A. Calculate the unit cost growth rate using the constant rate of change model with continuous compounding.

    Initial Cost=Co=$10
    Cost after four years=C4=$13.80
    Constant growth rate=r=? (Continuous compounding)
    Number of periods=t=4

    We know ...

    Solution Summary

    Solution describes the steps to calculate unit cost growth rate. It also estimates the time period by which current cost of distribution will exceed the cost of proposed distribution network.

    $2.19