Mktg6200 33900 Creating and Sustain Cust Markets

Week 5 Pricing Assignment- Individual Assignment

Brian Burwell

     2/4/2017

MKTG6200 33900 Creating/Sustain Cust Markets SEC 04

Handwritten answers will be accepted, but must be clear and legible.

Show the step by step solutions to the following questions:

1. A firm is able to sell 10,000 units at $ 12 per piece. The company fixed cost is $30,000. Variable cost is $6 per unit.

1. What is the contribution per unit?

CPU = SELLING PRICE (SP) – VARIABLE COST PER UNIT (VCPU)

$12 - $6 = $6

1. What is the breakeven sales in $? What is the breakeven sale in units?

BREAKEVEN SALES ($) = FIXED COST/CPU/SP

$30,000 / ($6 / $12) OR $30,000 / 0.5 = $60,000

BREAKEVEN SALES (IN UNITS) = FIXED COST/CPU

$30,000 / $6 = 5,000 units

1. What is the markup on sales price? What is the mark up on total cost?

Sales = 10,000 * 12 or 120,000

Cost =10000*6+30000 or 90,000

Profit 120,000 – 90,000 or 30,000

Markup on Sales Price = 30000/120000 or 25%

Markup on Costs = 30000/90000 or 33.33%

They raise the price to $15 and demand drops to 8000.

1. Calculate the price elasticity.

Price elasticity = percentage change in quantity / percentage change in price

Change in price: 3/12 = .25

Change in demand: 2000/10000 = .20

Price elasticity: .20 / .25 = .80

1. What is the new markup (profit margin %) on the sales price ($15)? What is the new mark up ( profit margin %)  on total cost?

Sales: 8000 * 15 =  120,000

Cost: 8000 * 6 + 30000 = 78,000

Profit: 120,000 – 78,000 = 42,000

Markup on sales 35%

Markup on cost 53.85

1. Please calculate the total profit for this company as well as the profit per each toy sold. Are they better off raising the price?

Total Profit $42,000

42,000/8000 = 5.25 per toy

Yes they are better off raising the price because profit increased by 12,000