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) -
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- $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

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