Question

You are a manufacturer of Item X. Your Suggested Unit Retail Price is $180. You are offering the following incentives (Off List Price) to the retail trade sector to encourage retailers to sell your product. The retailer can qualify for:

Incentives                                                Discounts (%)                           Requirement to Qualify

Promotional Allowances                                5                                      Provide Off-shelf Display

Trade Discount                                               30                                      Be a retailer         

Cooperative Advertising                                 25 of qualified

                                                                        Retailer Ad expenditure   Pay for Advertising Copy

Quantity Discount                                           10                                      Buy less than 10 cases

                                                                        15                                      Buy 10-25 cases   

                                                                        20                                      Buy 25 plus cases

Cash Discount                                                 2/15     Net 30                  Early Payment

You extended the offer to the retailers on Friday, November 3, 2017. The payment received from Emerald Isle (a retailer) occurred Friday, November 17, 2017. Emerald provided you with its advertising copy and a picture of an off-shelf display. Emerald claims their advertising expenditure on the advertising copy was $2,800. Emerald’s order is for thirty cases and a case is packed twelve units per case.

We want to know what price per unit Emerald has to pay after discounts. To help you, fill out the following deal sheet to reflect the qualifying discounts for Emerald. Please note that:

• Discounts are estimated Off List Price; this means that ALL percentage discounts should be estimated using the Suggested Unit Retail Price as a base.
• After you estimate the discount on cooperative advertising expenditure you must divide the discounted dollar amount by #units bought to get discount per unit.
• 2/15 Net 30; Net 30 means the customer has 30 days to pay in full. 2/15 means that the customer will receive a 2% discount if payment is received within the first 15 days.

Incentives                                    Discounts (%)                         Qualify?     If Yes, Discount in         

                                                                                                     Yes / No               Dollars per unit

Promotional Allowances                    5.0                                       

Trade Discount                                   30.0                                     

Cooperative Advertising                     25.0                                       

Quantity Discount                               10.0                                          

                                                            15.0                                       

                                                            20.0                                          

Cash Discount                                     2.0                                            

QUESTIONS:

a. After all discounts, what is the price per unit for Emerald?

b. What is the contribution margin per unit for Emerald? What is the CMR for Emerald?

c. If your unit cost is $50 dollars, are you making money? If yes, what is the contribution margin per unit (off list price) and the CMR? If you are not making money, how much is the loss?

Answer 1

S.No	Particulars
1	Promotional discount	(30cases*12units per case*$180per unit) 64,800*5% = 3240 (3240/360 = 9 per unit)
2	Trade discount	64800*30% = 19440 (19440/360 = 54 per unit)
3	Cooperative advertising discount	= 2800*25% = 700 (700/360 = 1.94 per unit)
4	Quantity discount	= 64,800*20% = 12,960 (12,960/360= 36 per unit)
5	Cash discount	"= 64800 less all discounts above (64800-3240-19440-700-12960) = 28460*2% = 569 (569/360=1.58 per unit)
6	Cost per unit	= 180*70/100 = 126
	a. After all discounts price to emerald will be (64800-3240-19440-700-12960-569) = 27891 (27891/360 = 77.47 per unit)
	b. 27891-10% commission to wholesaler = 25102 (25102/360=69.7 per unit)
	c. Contribution margin per unit = 77.47- 50 = 27.47