Question

MKTG 334 (B-2-B) Module 2: Assignment #2 ame ease complete the following problem by filling in each of the blank spaces. Once you've -mpleted the problem requirements, please submit your responses. • In scenario 1, assume that COGS is 75% of sales (which means your profit margin will be 25% on every widget you sell). The first scenario assumes that no change occurs, either in reduction in costs, or, in sales revenues. We'll call this first scenario the "as is" or, "the status quo scenario." Your sales revenue in scenario 1 is $600 million. • In scenario 2, you reduce the original COGS from, 75% to 65% (through improvements in purchasing and procurement). You had to spend money (on new software, etc.) to reduce your purchasing costs and so your S&A increased by $2.0 million. Remember that in scenario 2 you don't increase your sales at all---so your sales revenues stay the same (no change from scenario 1), as do your Promotional Expenses (don't change from scenario 1) In scenario 3, you increase promotional expenses by15% (from a starting point of $35 million), resulting in a 25% increase in annual sales revenues. S&A costs increase by $5 million. Your purchasing costs do not decrease (i.e., COGS stays the same as it was in scenariol at 75%).

Answer 1

Scenario 1

Particualars	Amount(million)
Sales	600
Less: COGS(75% of sales,600*.75)	450
Profit	150

Scenario 2

Particualars	Amount(million)
Sales	600
Less: COGS(Reduced to 65% from 75%(Scenario 1) of sales+selling and adm expense increased by 2million,((600*.65%)+2)	392
Profit	208

Scenario 3

Particualars	Amount(million)
Sales(increased by 25%,600*125%)	750
Less: COGS(75% of sales,750*75%)+Selling adm increased by 5 million - Promotional expense 35Million	532.5
Less promotional expense(Incresed by 15% from35 million)35*115%	40.25
Profit	177.25

Note :COGS is variable cost, which will vary according to sales