# Calculating unit cost growth rate

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.

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#### 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.