The Huffman Tire Company has 3,000 tires in its inventory which are considered obsolete.Each unit originally cost the company $35.Management is considering options to reduce these inventory levels.Units can be sold directly to car dealerships for $30 per tire as opposed to the normal selling price of $45 per tire.The other option is to offer their current customers a $10 per tire rebate on their purchase.In addition to the $10 rebate, the program would cost the company approximately $24,000 to manage.They predict that either option will rid them completely of their excess inventory.The decision to sell directly to the car dealerships over offering the rebate will result in:

Question

Quizplus · Accepted Answer

Selling directly to car dealerships:
Revenue = $30 per tire x 3,000 tires = $90,000
Cost = $35 per tire x 3,000 tires = $105,000
Profit = $90,000 - $105,000 = -$15,000 (loss)

Offering $10 rebate:
Revenue = $45 per tire x 3,000 tires = $135,000
Cost = $35 per tire x 3,000 tires = $105,000 + $24,000 = $129,000
Profit = $135,000 - $129,000 = $6,000

Therefore, the best choice is to offer the $10 per tire rebate, which would result in a $6,000 profit.

The Huffman Tire Company Has 3,000 Tires in Its Inventory