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Consider the Business Application, “Cost-Volume-Profit Analysis and On-Demand Services.” In that item, Lee was quoted as saying about a leased parking space, “If we turn it over X amount of times, per-unit it becomes cheaper.” What does he mean when he says it becomes cheaper? Does the price Luxe pays go down the more it is used?
Expert Answer
Answer
The price Luxe pays does not actually go down with more usage. However, the per unit cost gets reduced. So, if the company reduces turnover time, the total cost gets divided by more number of units. So, the per unit cost gets reduced. Therefore, the per unit cost becomes cheaper.
