# Marketing Managment Solutions for Chapter 2 Q1-3 Essay

632 Words Mar 3rd, 2015 3 Pages
Strategic Marketing Problems Cases and Comments V11. Chapter 2

1a) Contribution per CD unit = Unit Selling Price – Unit Variable Cost = \$9.00 – (\$1.25 + \$0.35 + \$1.00) = \$6.40
b) Break-even volume in CD units Total Fixed Costs = \$275,000 + \$250,000 = \$525,000 Unit Break-even Volume = Total Fixed Costs/Contribution per unit = \$525,000 - \$6.40 = 82,031.25units Break-even volume in dollars
Contribution Margin = (Unit selling price – unit variable cost) / unit selling price = (\$9.00 – \$2.60) / \$9.00 = 0.7111 = 71.111%
Break-even Dollar Volume = Total Fixed Costs / Contribution Margin = \$525,000 / 0.7111 = \$738,282.40
c) Net profit if 1 million CDs are sold
= Total Contribution – Total Fixed Costs = (\$6.40 X 1,000,000) -
- \$1.40) / \$2.00] = \$150,000 / 0.30 = \$500,000
Absolute increase in unit sales for Red-Away
= \$150,000 / \$0.75 = 200,000units
Absolute increase in dollar sales for Red-Away
= \$150,000 / [(\$1.00 – \$0.25) / \$1.00] = \$150,000 / 0.75 = \$200,000
b) Additional sales dollars must be produced to cover each \$1.00 of incremental advertising for Rash-Away
Total Sales Dollars (for covering each incremental dollar of advertising) = Absolute increase in dollar sales / Advertising expense = \$500,000 / \$150,000 = \$3.33
Additional sales dollars to cover the advertising expense = Total Sales Dollars – Unit Price = \$3.33 - \$2.00 = \$1.33
Additional sales dollars must be produced to cover each \$1.00 of incremental advertising for Red-Away
Total Sales Dollars (for covering each incremental dollar of advertising) = \$200,000 / \$150,000 = \$1.33
Additional sales dollars to cover the advertising expense = \$1.33 - \$1.00 = \$0.33
c) Absolute increase in unit sales for Rash-Away
Reduced price by 10% = \$2.00 X 0.90 = \$1.80
Unit contribution = Unit Price – Unit Variable Cost = \$1.80 – \$1.40 = \$0.40
Absolute increase in unit sales = \$150,000 / \$0.40 = 375,000units Absolute increase in dollar sales for Rash-Away
= \$150,000 / [(\$1.80 - \$1.40) / \$1.80] = \$150,000 / 0.22 = \$681,818.18
Absolute increase in unit sales for Red-Away
Reduced price by 10% = \$1.00 X 0.90 = \$0.90
Unit contribution = \$0.90 - \$0.25 = \$0.65
Absolute increase in unit sales = \$150,000 / \$0.65 = 230,769.23units