Swing vs Steady
a)Swing:
Sales: 5000
Price per unit: $10
Variable Cost per unit: $2.5
Fixed Cost: $35000
Current Profit: $ 2500
New Price per additional unit: 0
New Contribution Margin = New Price per unit – Variable cost per unit =$8.5-$2.5 =$6
New Sales unit @40% additional sales= 5000*40%= 2000
Additional profit @40% additional Sales = Additional Sales* New Contribution Margin =2000*6 =$12000
New Sales unit @20% additional sales= 5000*20%= 1000
Additional profit @20% additional Sales = Additional Sales* New Contribution Margin =1000*6 =$6000
Steady: Sales: 5000
Price per unit: $10
Variable Cost per unit: $5.5
Fixed Cost: $35000
Current Profit: $ 2500
New Price per additional unit: $8.5
New
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The change in the contribution margin for all the products is responsible for the change in profitability.
c) Swing is better positioned to take advantage of this opportunity because with a 40% increase in sales at a price of$ 8.5 per unit, it incurs additional profits of $4500; whereas Steady incurs losses of $1500.
If the companies share the market both the companies will have additional sales lower than the break-even sales resulting income lower than their current income. In such a case Steady will suffer far more losses. Low variable costs and hence lower contribution margins of Swing make the company more profitable in comparison to Steady for the sales of additional units. Since the market cannot be segmented, I would advise Swing to reduce its price and enter the market to acquire 40% additional sales. Steady should overlook the new market and continue selling to the current market without changing its price.
d) Break even sales change that would change the profits by the same amount as a reduction in price.
Initial Contribution Margin= 10-5.5=4.5
Reactive breakeven = ∆P/Initial CM =-1.5/4.5=- 33.33%
Thus a sales reduction of 33.33% percent at initial price of $10 is equivalent to losses brought about by a price reduction of 1.5.
Steady’s management believes that a price of $10 after Swings reduction to $8.5 would have brought
Thus, the firm should sale 44,461.54 kg at retail price of 6.85 to achieve the same profit impact as selling 30 tons at retail price of 8.20.
Although the company did show an increased gross profit of $8,255,000 with $6,358,000 less Net Sales in 2013 versus 2012, that increase is due to the reduction in product Cost of Goods Sold by $14,613,000. Since increases in product price will negatively affect sales, one of management’s primary goals is to keep prices stable. This objective is achieved through implementation of cost cutting programs, investing in more efficient equipment, and automation of more steps in the production process.
13. If the selling price is $22 per unit, what is the contribution margin per unit sold?
If these are both changed, what is the new contribution margin per haircut? What is the new annual break-even point in number of haircuts?
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.
= Unit Selling Price – Unit Variable Cost = $9.00 – ($1.25 + $0.35 + $1.00) = $6.40
Using $8.50 as the variable cost provided at the bottom of the case study and using $39.95 as the retail selling price as compared to $23.97 as the wholesale selling price (60% of the retail price), ServiSoft will realize a contribution margin of $31.45 with the retail distribution channel versus $15.47 with the wholesale distribution channel.
The contribution margin is the difference between per unit revenue and per unit variable cost (the variable cost rate). It is the dollar amount per visit available to cover fixed costs. If the fixed costs are high (provider B), then the impact of the contribution margin on the profit is low.
A major issue is since reducing the price 20% reduces the profit margin to 15%, to maintain the same profit while reducing the price, the sales must be $28 million for this year. This is an increase of 233% in one year to justify reducing the price this much. This is a highly unlikely target.
How would you use these cost and revenue estimates to determine whether a sales force increase (or possibly a decrease) is
By using option 1 TDS will sell 116,666.67 units more in 2003 considering is they don’t make any changes, they are only expected to reach 400,000 bottles in sales, as a result they will break even in option 2 and make a loss of (54,545.45 units) for option 3.
When three friends are pressured by the government and each other, what choices will they make to strengthen or weaken their friendship? When people are pressured into things, does the character change? Is it a good or bad way. In the movie “Swing Kids” Peter, Thomas, and Aarvid made choices that reflect the strengths and weaknesses of their friendship.
The break-even point in number of sales in 2003 was 7,012 units sold. In 2004 the break-even point was 7,727 units sold, and in 2006, the break-even point was 11,902 units sold. In respect to the break-even point in sales dollars, the break-even point for 2003 was $7,131,204. In 2004 this value was $7,456,555, and in 2006, the break-even point rose incrementally to $11,556,842. During 2003 and 2004, Hallstead resided in their previous location which held 10,230 square feet. Between these years, there is an increase in their break-even point, but this change can be associated with a down year in sales. Their sales decreased by approximately $481,000. Along with that, we can see that Hallstead’s fixed costs remained stable, only
To determine contribution margin per unit I used, 1,728,000 / 12,000 = $144 per visit. This is based on the average contribution margin, as some customers will eat, drink and use the internet and some customers will just use the internet.
On the other hand, based on Appendix 2 after consider all other variable cost like credit card fee, royalty, and with the assumption of fuel price did not increase. RON95’s contribution margin ratio was increase from