You can reduce your costs but reducing the necessary costs may prevent you from running your business.
What is the next option The next option is naturally as you might have guessed is to sell more number of units. Suppose the profit per unit is $5.If you sell 100 units per day your profit would be $5*100 i.e. $500 profit. Now suppose you sell double the number of units i.e. 200 units per day then your profit would be $5*200 i.e. $1000 .Alas it is not as simple as it seems; to double the number of units you sell you have to manufacture twice the number of units which will have its own costs. Your operations have to be perfect in order to satisfy your customer requirement and give you credibility in the market so that you can get more orders. If you commit any mistakes your reputation may be harmed and that may prove to be a deterrent in your getting more contracts and at the same time you cannot limit yourself to produce only a certain number of units as that way you will never grow, your competitors will get ahead of you and will eventually make better offers than you and you may even loose what you have. So you see there is not much choice, it is a tight rope walk you have got to master. Also you aught to know what is your maximum capacity utilization; you must not underutilize or over utilize your capacities. Your operations should over a calculated period of time be able to provide economies of scale. Your concern here is maximizing your gross profits and minimizing your total costs and knowledge of Mathematical Programming.1 (Linear Programming) can help you some what if your operations become very complex. As a manager it is helpful for you to know basic quantitative tools used by managers. If you yourself do not know much you can take the help of a professional or a friend. You might observe that your net profit forms into an equation which has to be maximized as in a Linear Programming problem. Your constraints that are your fixed cost items like your manufacturing capacity, plant, machineries, locations may also form into an equation.
The Present Problem:
The present problem is very simple but it helps us to visualize complex situations.
Usually industry procedures are more or less standardized. If you at present are supplying pallets to a manufacturer who uses two pallets an hour, it is logical to think that he is using some standardized process and that there are other manufacturers who might be using the same standard procedure and requiring the same number