Joey’s is a manufacturer with annual sales of 5000 units. It costs them $2 per unit...

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Joey’s is a manufacturer with annual sales of 5000 units. It costs them $2 per unit...

Joey’s is a manufacturer with annual sales of 5000 units. It costs them $2 per unit and they sell at a price of $6 each. Fixed costs to run the business are 160 000 per year.

What is the current total contribution?

Joey’s is considering increasing the price to $7.50/unit and increasing its advertising to $4000. This would result in a sales decrease of 33%.

What is the total new contribution?

What is incremental contribution?

Should you go ahead with the adjustment?

business finance

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Answer 1

Answer #1

Contribution Margin = Sales – Variable costs

= (6-2)*5000

= $20,000

Total new contribution = (7.50-2)*3350

= $18,425

No, since total contribution margin has reduced

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Answer 2

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