Marketing Managment Solutions for Chapter 2 Q1-3 Essay

QUESTION 2: What total contribution is required to cover the new fixed costs and earn $500 profit per issue?

New Contribution Margin = New Price per unit – Variable cost per unit =$8.5-$2.5 =$6

Breakeven Analysis for Product Tylenol Approach 1 - Same price as Tylenol Approach 2a - Cheaper than Tylenol Approach 2b - Cheaper w/lowered trade cost $ $ $ $ Unit Cost (Variable Cost) 0.60 0.60 0.60 0.60 Trade Cost (Selling Price to Retailers) $ 1.69 $ 1.69 $ 1.05 $ 0.70 Fixed Cost (Advertising) 2,000,000 6,000,000 6,000,000 6,000,000 Break-Even Quantity [Fixed Cost/(Trade Cost-Unit Cost)] 1,834,862 5,504,587 13,333,333 60,000,000 Contribution Margin (Unit) 64% 64% 43% 14%

13. If the selling price is $22 per unit, what is the contribution margin per unit sold?

Determine the unit break-even point, assuming fixed costs are $60,000 per period, variable costs are $16.00 per unit, and the sales price is $25.00 per unit.

The break-even point for place mats is $50,000.00. This is found by the selling price per unit is $12.00. The variable price per unit of place mats is $3.60. $12.00 minus $3.60 equals $8.40. You then divide

The biggest challenge that they face as a company is they do not have the room the increase expenditure by such a vast amount. Currently there is $3,675,000 in promotional dollars allocated as follows; sales and administration expense (995,000), cooperative advertising programs with retailers (1,650,000), consumer advertising (562,000) and trade promotion (467,000). adding the $225,000 increase in consumer advertising will not allow the 5% of expected sales for total promo expenditures. John Bott, the vice president of sales disagreed with the budget allocation and noted that sales expenses and administration cost were projected to be $65,000 in 2008. This led him to believe that an additional sales representative would be needed to service company accounts because 50 were being added. Therefore he estimated this addition would cost at least $70,000 including salary and expenses in 2008. Bott also stated that “That's about $135,000 in additional sales expense that have to be added to our promotional budget for 2008”

Assume that next year management wants the company to earn a minimum profit of $162,000. How many units be sold to meet this target profit figure? [3 points]

In our second assumption, instead of using the cost of goods per cases in 1986, we try to use the percentage it counts in the total expenses which is 50.4% and to find the sales needed to break-even. The detail of the calculation is shown in the answer for questions d. The result is that 95,635, a little bit higher than the estimated sales of 90,000.

1. The local Mastermind store sells innovative educational toys. Part of their service is giving advice to customers about the best toys for a particular age group, which requires having more customer service representatives in the store. During the month long Christmas buying season, it makes half of its $500,000 yearly sales. Its contribution margin on average is 40% and its fixed costs for the year are about $150,000. The owner believes that she could make even higher sales, if she had more customer service representatives on the floor during the peak season. She plans on hiring four more people for 200 hours each at $20 per hour. How much additional revenue does she have earn to the nearest dollar

The amount of extra sales that would be required to cover this cost of 300,000 would be

2.) For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour.

Answer: D DM 13.00 + DL 55.00 + V OH 1.00 + F OH 15.00 = 84.00

The revenue is $600,600*1.2= $720,720. The variable cost changes as sales increases and fixed cost stays the same, the gross profit is $175,500. After tax, the net income is $100,557.

C. Margin of safety is calculated by doing Profit divided by contribution per unit = Sale Units (No. Of) To workout out the percentage you do sale units divided by the Now of units sold X 100 = %