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After this point D remains the cheapest.With production of 10,000 units a year, alternative B, using a local distributor, is cheapestwith costs of (2,400,000 + 10,000 × 700 =) g9.4 million. Alternative A, exporting directlywith existing facilities is not much more expensive at (800,000 + 10,000 × 900 =) g9.8million, and is probably easier to organise.Option B has an average cost of g940, and adding a contribution to profit of 10% givesa selling price of 940 × 1.1 = g1034, and total profit of g940,000. If Warwick negotiateda royalty of 2% of sales, they would get a profit of only 1034 × 0.02 × 10,000 = g206,800.Of course, these figures only give the starting point for a decision. Now Warwick haveto look at the more detailed costs, their aims, longer term plans, amount of control theywant, and a whole series of other factors.
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