Question

Table 1: Pepita Disco Performance, 2011 (UYU in millions)

Units sold	100 million units
Revenue	200
Variable costs
Materials	30
Direct labor(manufacturing,sales)	40
Opearational costs(manufacturing,inventory,delivery)	30
Other variable costs	20
Margin on Sales	80
Fixed Costs
Marketing and advertising	10
Research and development	10
Other fixed costs(e.g head office)	40
Net margin	20

1. What would be the absolute and percentage changes in net margin if Pepita Disco were to:

a. Reduce research and development 10%?

b. Reduce marketing and advertising 10%?

c. Reduce all fixed costs 10%?

Answer 1

Solution :- Calculation of the absolute and percentage change in Net margin :-

a. Reduce research and development 10 %

New research and development Costs = $ 10 Million * 90% = $ 9 Million

b. Reduce marketing and advertising 10 %

New marketing and advertising Costs = $ 10 Million * 90% = $ 9 Million

c. Reduce all fixed cost  10 %

New Other Fixed Costs Costs = $ 40 Million * 90% = $ 36 Million

Units sold	100 million units
Revenue	200 Million
Less : Variable Costs
Material	( 30 )
Direct Labor	( 40)
Operational Costs	( 30 )
Other variable costs	( 20)
Contribution Margin	80
Less : Fixed Costs
New Marketing & Advertisement Costs	( 9 )
New Research & Development Costs	( 9 )
New other Fixed Costs	( 36 )
Net Margin	26 Million

Particulars	New	Old	Change
Net Margin (Absolute)	26 Million	20 Million	Increase 6 Million
Net Margin (Percentage) = Net Margin /Sales *100	26 /200*100 = 13 %	20/200*100= 10%	Increase 3%