Using the Relation Between Quantity, Cost and Price to Increase Company Profit under Existing Production Capacity

Abstract

Small and medium enterprises are constantly facing problems when looking to increase sales and profits to benefit from economies of scale, managing the complex relation between quantity, price, unit total cost and unit fixed costs. The price, costs and quantities are interconnected and they influence each other, considering the competition, the response of the clients and the need for a better use of existing production capacities. This paper offers the managers a solution to the complex issue of correlating the fore-mentioned variables in their efforts of increasing total operating profit. We have identified the correlations managers should observe in their attempts to maximize profits under the constraints of existing production capacity.

Keywords

• maximizing profit under existing production capacity
• discounts
• index of profit
• index of profit margin
• index of quantities sold