Question

43 44 PROBLEM 3 (4 pts) 46 Courtney is a manufacturer's representative for an industry leading supplier of technology products. She has determined that last year her largest customer, Abbacus, purchased 10,000 cases of 47 product from her at a price of $300 per case. The gross margin on those sales was 40%. Abbacus has pressed Courtney hard for a 5% discount (reduction in selling price) throughout the next year. Courtney has spoken with her manager and learned that she will be expected to 48 generate 5% more in gross margin next year than she did last year. 49 50 a. How much Sales Revenue and Gross Margin did Courtney generate from Abbacus last year? 51 b. If Courtney grants a 5% discount off of the $300 list price per case to Abbacus, how much sales revenue and gross margin will be generated if she sells the same number of cases to Abbacus (10,000) as she did last year? Report the difference in revenue and margin that Courtney will lose at 54 the lower price if the discount is granted and unit sales remain the same at 10,000 cases. 56 57 c. If Courtney grants the price discount request, how many additional cases of product would she 58 need to sell to: 59 () Abbacus at $285 (95% of $300), or 60 () other customers at list price of $300 to make up the lost $150 K Gross Margin earned from Abbacus next year caused by the 5% discount?

Answer 1

a. Last year sales revenue = $ 300 * 10000 case = 3,000,000 $

Gross Margin thereon = 40% * 3,000,000 => 1,200,000.

So Cost => 3,000,000*60% = 1,800,000

b. Units sold is same as last year ie 10000 units. So, Sales Revenue => ($300 * (100-5)%) * 10000 = 2,850,000

So, Gross Margin = Sales - Cost => 2,850,000 - 1800000 = 1,050,000

So difference is sales revenue as well as gross margin => 150,000.

c. Fall in gross margin = $ 150,000.

i) Contribution per unit, if Selling Price = $ 285 -> 285 - (300* 60%) = 105.

So. 150,000 / 105 = 1428.5 or 1429 units.

ii) Contribution per unit, if Selling Price = $ 300 -> 300  - (300* 60%) = 120.

So, 150000 / 120 = 1250 units.