3. Consider a retailer selling blenders currently priced at $54. Suppose it pays $29 per blender from the manufacturer.
A. Initial contribution margin is $54-$29= $25
B. Suppose it is considering a 33% cut in price to boost sales. What is the break-even change in sales required to maintain its profitability?
C. Alternatively, suppose an expert tells the retailer that it should consider raising its price of the blenders to $59 to improve profit. What is the break-even change in sales permissible to again maintain its profitability?
D. Using the break-even change in sales you obtained in (b) and (c), plot the break-even curve for the retailer.
E. Suppose the retailer’s market research team determines that the elasticity of demand for consumers of blenders is – 1.5. What does this imply about the actual demand for blenders in case of the two situations: a 33% price cut or a price increase to $59? Plot the demand curve alongside the break-even curve to show the difference between the two curves.
F. Can you make recommendations to the retailer regarding which strategy makes more sense: a 33% price cut or a price rise to $59 from its current price level of $54?
| Assuming Current Sales in units=N | ||||||
| Fixed Costs=F | ||||||
| Current Profit=N*25-F | ||||||
| Break even Sales =N1 | ||||||
| Changed Price =(1-0.33)*54= | $36 | |||||
| Changed Contribution Margin=36-29= | $7 | |||||
| Changed Profit =N1*7-F | ||||||
| For Breakeven, | ||||||
| N1*7-F=N*25-F | ||||||
| 7N1=25N | ||||||
| N1=(25/7)*N=3.57N | 3.571429 | |||||
| Break even Increase in sales Required | 257.14% | (3.571429-1) | ||||
| C | Increasing Price to $59 | |||||
| Assume Breakeven Sales=N2 | ||||||
| Changed Contribution =59-29=$30 | ||||||
| Changed Profit=N2*30-F | ||||||
| N2*30-F=N*25-F | ||||||
| 30N2=25N | ||||||
| N2=(25/30)*N=0.83333N | 0.833333 | |||||
| Breakeven DECREASE in Sales | 0.16667 | (1-0.83333) | ||||
| Breakeven DECREASE in Sales | 16.67% | |||||
3. Consider a retailer selling blenders currently priced at $54. Suppose it pays $29 per blender...
3. Consider a retailer selling blenders currently priced at $54. Suppose it pays $29 per blender from the manufacturer. A. Initial contribution margin is $54-$29= $25 B. Suppose it is considering a 33% cut in price to boost sales. What is the break-even change in sales required to maintain its profitability? C. Alternatively, suppose an expert tells the retailer that it should consider raising its price of the blenders to $59 to improve profit. What is the break-even change in...
1. When it comes to financial matters, the views of Aristotle can be stated as: a. usury is nature’s way of helping each other. b. the fact that money is barren makes it the ideal medium of exchange. c. charging interest is immoral because money is not productive. d. when you lend money, it grows more money. e. interest is too high if it can’t be paid back. 2. Since 2008, when the monetary base was about $800 billion,...