Ch2 Solution

1533 WordsOct 29, 20147 Pages
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KSA121 SEARCH * RESEARCH DOCUMENTS * BOOK NOTES * AP NOTES StudyMode - Premium and Free Essays, Term Papers & Book Notes Solution of Strategic Marketing Problems Chapter 2 Page of 8 * Home » Business & Economy » Marketing & Advertising Solution of Strategic Marketing Problems Chapter 2 By akm1985 | Jan. 2011 * Zoom In * Zoom Out Page of 8 MKT 2375 Chapter 2 Problem 1 a. CD Contribution Profit Selling Price to CD Distributor Less: Variable Cost $9.00 $1.25 $0.35 $1.00 $2.60 CD…show more content…
Revenue to Cover each $1.00 of Incremental Advertising Rash Away $1.00 Incremental Advertising / 30% Contribution Margin = $3.33 Sales………………………….. $3.33 Variable Costs (70%)……….. $2.33 Contribution Margin (30%)… $1.00 Incremental Fixed Cost........ $1.00 Profit………………………….. $0.00 Red Away $1.00 Incremental Advertising / 75% Contribution Margin = $1.33 Sales…………………………... $1.33 Variable Costs (25%)……….. $0.33 Contribution Margin (75%)... $1.00 Incremental Fixed Cost……. $1.00 Profit……………………..……. $0.00 CHAPTER 2 Problem 3 c. Revenue to Cover Current Contribution Profit Give 10% Price Drop RASH AWAY 1. Current Contribution Dollars = 1,000,000 units x $0.60 = $600,000 2. New Price with 10% Price Reduction= $1.80 Unit Price $1.40 Unit Variable Cost $0.40 Unit Contribution or 22.22% CM 3. $0.40 (x) = $600,000, where x = units (x) = 1,500,000 units 4. Increase in Unit Sales = 500,000 (1,500,000 – 1,000,000 = 500,000) 5. .2222 (x) = $600,000, where x = dollars x = $2,700,000 6. Increase in Dollar Sales = $700,000 ($2,700,000 - $2,000,000) RED AWAY 1. Current Contribution Dollars = 1,500,000 units x $0.75 = $1,125,000 2. New Price with 10% Price Reduction= $0.90 Unit Price $0.25 Unit Variable Cost $0.65 Unit Contribution or 72.22% CM 3. $0.65 (x) = $1,125,000, where x = units (x) = 1,730,769
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