Question

selling bottles of 321 Blatzoff, a reasonably nasty-tasting energy 1. You have a small business selling bottles of 321 Blat drink. You sell each bottle of 321B0 for $6.50. och bottle costs you $3.00 to purchase from the manufacturer. You pay your salesperson a 10% commission per month Your rent is $1,700 per month. Other miscellaneous costs (insurance, utilities, etc.) average You are pretty sure you can sell 1, erson a 10% commission on all sales on top of a base salary of $1,100 , utilities, etc.) average $400 per month Welly sure you can sell 1,500 bottles per month at the $6.50 price point. A. How many bottles do you need to sell to br iany bottles do you need to sell to breakeven each month (round up to the nearest whole bottle)? B. How much monthly income will you have if you sell 1,500 bottles per month onsidering offering a 10% off coupon for each bottle to increase sales. You think sales will increase to 2,100 bottles per month (assuming each bottle will be purchased with a coupon). A fixed coupon processing fee of $400 will be incurred each month if you choose this strategy C. How many bottles will you need to sell each month to breakeven with the coupon strategy (round up to the nearest whole bottle)? Assume sales commissions will still be based on the $6.50 "list price." D. How much monthly income will you have if you sell 2,100 bottles each month with this coupon strategy? Another option you are considering involves spending $4,200 per month on an advertising campaign. You think that you can raise monthly sales to 3,200 bottles at an undiscounted sales price of $6.50 (i.e., no coupons, etc.). E. How many bottles will you need to sell each month to breakeven with the advertising strategy (round up to the nearest whole bottle)? F. How much monthly income will you have if you sell 3,200 bottles each month with the advertising strategy? Which strategy would be best if you thought you could sell 3,400 bottles per month either with the coupons or the advertising? In other words: G. How much income would you make with the coupon strategy if you were able to sell 3,400 bottles per month? H. How much would you make with the advertising strategy if you were able to sell 3,400 bottles per month?

Answer 1

Solution A:

  

Sales/unit	$6.50
No. of bottles	1500
Sales Revenue	$9,750
Variable cost
Bottle Cost/bottle	$3.00
Total Bottle cost	$4,500
Sales commission @ 10% on sales	$975
Total Variable cost	$5,475
Contribution	$4,275
Contribution/bottle	$2.85
Fixed cost
Rent	$1,700
Salary	$1,100
Miscellaneous costs	$400
Total fixed cost	$3,200

Break Even Sales (bottles) = Total Fixed Cost / Contribution per bottle

= $3200 / $2.85

= 1122.81 (or) 1123 bottles

B. Monthly income = Sales Revenue - (Variable cost + Fixed cost)

= $9,750 - ($5,475+ $3,200)

= $ 1,075

C : with coupon offer-2100 bottles sales

Sales/unit	$5.85
No. of bottles	2100
Sales Revenue	$12,285
Variable cost
Bottle Cost/bottle	$3.00
Total Bottle cost	$6,300
Sales commission	$1,365
Total Variable cost	$7,665
Contribution	$4,620
Contribution/bottle	$2.20
Fixed cost
Rent	$1,700
Salary	$1,100
Miscellaneous costs	$400
Coupon processing fee	$400
Total fixed cost	$3,600

Break Even Sales (bottles) = Total Fixed Cost / Contribution per bottle

= $3600 / $2.20

=1636.36 or 1637 bottles

D :

Monthly income = Sales Revenue - (Variable cost + Fixed cost)

= $12,285 - ($7,665+ $3,600)

= $ 1,020