Homework Answers
a.
| Particulars | Amount | |
| Selling price of candy sold by Walgreens | 2.00 | |
| Less: Contribution margin thereon (%) | 2*25% | 0.50 |
| Selling Price of Wholesaler | 1.50 | |
| Less: Contribution of wholesaler (20%) | 1.5*20% | 0.30 |
| Selling Price By manufacturer | 1.20 | |
| Less: Manufacturing Cost | Given | 0.50 |
| So, contribution margin | 0.70 |
b. Value of coupon = $ 0.2 and redemption is 1 out 10. So, discount per coupon is likely to be 0.2/10 = $ 0.02. So new contribution = 0.70 - 0.02 = 0.68.
Existing Contribution => 1,000,000 * 0.7 = 700,000.
So, Units to be sold to recover said contribution => 700,000/0.68 = 1029412. Hence additional units to be sold => 1029412 - 1000000 = 29412.
Verification:
| Contribution (1029412 * 0.7) | 720588 |
| Less: Coupon (1029412/10) * 0.2 | 20588 |
| Total net contribution margin | 700000 |
c.
Present Contribution of wholesaler => 0.3 * 1000000 = 300000
| New Contribution (1000000+100000)*0.3 | 330000 |
| Old Contribution | 300000 |
| Incremental Contribution | 30000 |
| Less: Share of coupon cost (0.2*50%)*(1100000*1/10) | 11000 |
| So, next excess contribution | 19000 |
So wholesaler should be willing to share.
Please comment in case of any query regarding the solution.
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