Profit Calculation for LG’s Small Touchpad Exports under Different Exchange Rates

QUESTION

LG, a South Korea firm, exports small touchpads.  Let’s assume they cost 155,000 Won to produce.  In the U.S. they can sell these processors to Amazon and US retailers for $150.

How much money could the firm make in profit (or loss) at the following exchange rates per unit:

(1)   1200 Won per Dollar

(2)   0.0009 Dollars per Won

ANSWER

Profit Calculation for LG’s Small Touchpad Exports under Different Exchange Rates

Introduction

In the global marketplace, exchange rates play a pivotal role in determining the profitability of international transactions. This essay delves into the financial implications for LG, a prominent South Korean firm, exporting small touchpads to the United States. With a focus on optimizing SEO, we will explore how LG’s profits or losses are influenced by two distinct exchange rates: 1200 Won per Dollar and 0.0009 Dollars per Won.

Exchange Rate: 1200 Won per Dollar

At an exchange rate of 1200 Won per Dollar, LG’s cost of production for a small touchpad is 155,000 Won. To assess the profitability of each unit sold, we need to convert the selling price from dollars to Won. Selling a touchpad to Amazon and US retailers for $150 translates to 180,000 Won (150 * 1200) using this exchange rate.

Profit Calculation: Profit per Unit = Selling Price – Cost of Production Profit per Unit = 180,000 Won – 155,000 Won Profit per Unit = 25,000 Won

In this scenario, LG stands to make a profit of 25,000 Won per unit sold. The profitability is bolstered by the favorable exchange rate, allowing the company to cover its production costs and generate surplus revenue.

Exchange Rate: 0.0009 Dollars per Won

Conversely, at an exchange rate of 0.0009 Dollars per Won, the analysis takes a different turn. The cost of production remains 155,000 Won, while the selling price in dollars remains $150.

Conversion of the selling price to Won: Selling Price in Won = Selling Price in Dollars / Exchange Rate Selling Price in Won = 150 / 0.0009 Selling Price in Won = 166,666.67 Won

Profit Calculation: Profit per Unit = Selling Price – Cost of Production Profit per Unit = 166,666.67 Won – 155,000 Won Profit per Unit = 11,666.67 Won

Under this exchange rate, LG’s profit per unit drops significantly to 11,666.67 Won. The company’s profitability is curtailed due to the less favorable exchange rate, which hampers its ability to cover production costs adequately.

Conclusion

Exchange rates hold the power to reshape the financial outcomes of international business operations. In the case of LG’s small touchpad exports, the difference between an exchange rate of 1200 Won per Dollar and 0.0009 Dollars per Won is stark. While the former allows LG to reap a substantial profit of 25,000 Won per unit, the latter diminishes the profit margin to 11,666.67 Won per unit. As LG navigates the dynamic world of global trade, understanding the nuances of exchange rates is paramount to optimizing profitability and making informed business decisions.