Pricing, Break-Even, and Marginal Analysis, Essay examples

595 Words Dec 17th, 2012 3 Pages
Activity 7.4

* Answer questions from Appendix 2, sections on Pricing, Break-Even, and Marginal Analysis, page A-11 through A-16, answer questions 1.1, 1.2, 1.3, 1.4 and 1.5 from page A-16. * Show the formulas used to calculate the answers for these questions.

1.1: Sanborn, a manufacturer of electric roof vents, realizes a cost of $55 for every unit it produces. Its total fixed costs equal $2 million. If the company manufactures 500,000 units compute the following: a) unit cost- unit cost = variable cost + fixed cost/unit sales x= $55 + $2,000,000/500,000 = $59 unit cost b) markup price if the company desires a 10% return on sales- unit cost/(1 – desired return on sales) $59/(1 - .10) = $65.56 c) ROI price
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Retailers take a 40% margin based on the retail selling price. Advance’s cost is as follows:
DVD package and disc: $2.50/DVD
Royalties: $2.25/DVD
Advertising and promotion: $500,000
Overhead: $200,000
Calculate the following: a) contribution per unit and contribution margin unit contribution = selling price – unit variable cost
Advance’s price = retail price – (retail price x % retailer margin) = $20 – ($20 x .4) = $ 4.75
Contribution per unit = $12 - $4.75 = 7.25
Contribution Margin = unit contribution/price = $7.25/$12 = 60.4% b) break-even volume in DVD units and dollars
Breakeven volume = fixed costs/unit contribution = $700,000/$7.25 = 96,552 units
Breakeven sales = breakeven volume x price = 96,552 x $12 = $1,158,624 c) volume in DVD units and dollar sales necessary if Advanced’s profit goal is 20% profit on sales
Unit volume = fixed costs/price – variable cost – (.2 x price)
$700,000/$12 - $4.75 – (.2 x $12) = 144,330 units
Sales necessary = 144,330 units x $12= $1,731,960 d) net profit if 5 million DVDs are sold fixed cost – total contributions
($7.25 x 5,000,000 units) - $700,000 =

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