Question

The selling price of imported olive oil is $20 per case. Your cost is 15 Euros per case, and the exchange rate is currently 1.25, so it takes 1.25 Euros to buy $1. Your largest customer has ordered 15,000 cases of olive oil. How much is the pretax profit for this transaction?

Answer 1

Answer:

$120,000

Explanation:

According to this question, the selling price (S.P) of one case of imported olive oil is $20 while the cost price (C.P) is €15.

The currencies are not the same. They have to be the same in order to work with them. The exchange rate of both currencies, according to the question is:

€1.25 = $1

We'll be making both the S.P and C.P dollars ($).

Hence, €15 will be 15 ÷ 1.25 = $12

This means that the C.P is $12 and the S.P is $20 per case.

If a customer ordered 15,000 cases of olive oil;

A) the cost price (C.P) of 15,000 cases of olive oil will be $12 × 15,000 = $180,000

B) the selling price (S.P) of 15,000 cases of olive oil will be $20 × 15,000 = $300,000

In any business, the profit is always the selling price minus the cost price i.e. P = S.P - C.P

Hence, the pretax profit on the 15,000 cases of olive oil will be;

$300,000 - $180,000 = $120,000.