Attempt both questions. Answer all parts of each question. You may submit your quiz independently or with 1 other student. Equal participation is assumed under the honor system. Each question i

Attempt both questions. Answer all parts of each question. You may submit your quiz independently or with 1 other student. Equal participation is assumed under the “honor system.”

Each question is worth 50 points. You MAY have an oral examination to explain your answers.

Explain your logic in each instance.

Note: Dr. Mark Rosenberg is president of FIU.

Dr. Anthony Miyazaki is Chair of FIU’s Marketing Department.

1. The Miyazaki Balderdash Company has two brands (“A” & “B”). Price and cost data for each are presented below.

“A” “B”

Unit price \$3.75 \$4.05

Unit variable costs \$2.25 \$2.25

Unit volume/year 750,000 units 1,250,000 units

Annual Promotional expense \$500,000 \$750,000

a) Calculate the unit contributions and contribution margins for each brand at the unit level. What are the respective brand contributions of “A” and “B” to the Miyazaki Company.

i) “A”

Unit Contribution

ii) “B”

Unit Contribution

b) It has been proposed that the price of each brand be reduced by 15%

New price for A =

New price for B =

What would be the new unit contribution and contribution margin for each brand?

“A”

“B”

c) Compute the approximate elasticity of demand that would result in no change in total contribution for Brand “A” and Brand “B”, respectively, after implementing the 15% price cuts.

Without any further information which brand would you recommend for a price cut if management is profit oriented? Explain! (In this element of the question ignore the annual promotional expense)

“A”

“B”

YOU CAN GUIDE YOURSELF WITH THE ATTACHMENTS

ATTACHMENT PREVIEW

Fall 2012
MAR 4804/U01M
Dr. Bruce Seaton
Financial Quiz
Attempt
two
(of three) questions.
Answer all parts of each question.
The third question is based
You may submit your quiz independently or
with 1 other student.
Equal
participation is assumed under the “honor system.”
Note: Dr. Mark Rosenberg is president of FIU.
Dr. Walfried Lassar is Chair of FIU’s Marketing Department.
1.
The Lassar Balderdash Company has two brands (“A” & “B”).
Price and cost data for
each are presented below.
“A”
“B”
Unit price
\$3.35
\$4.25
Unit variable costs
\$2.05
\$2.45
Unit volume/year
750,000 units
1,250,000 units
a)
Calculate the unit contribution
and
contribution margin
for each brand:
i)
“A” Contribution Margin
C=P-V
3.35-2.05=1.3
Unit Contribution 3.35-
1.3/3.35=39%
ii)
“B”
C=P-V 4.25 – 2.45 = 1.8
Unit Contribution
1.8/4.25=.42%
b)
It has been proposed that the price of each brand
be reduced by 15%
What would be the new
unit contribution
and
contribution margin
for each
brand?
“A” New Price 2.85

Unlock Solution Unlocking…

Contribution Margin
2.85-2.05=.80
Unit Contribution
.8/2.85=.28%
“B” New Price = 3.61
Contribution Margin
3.61-2.45=1.16
Unit Contribution
1.16/3.61
c) Compute the
approximate elasticity of demand
that would result in
no change in total
contribution
for Brand “A” and Brand “B”, respectively, after implementing the 15% price cuts.
Without any further information
which brand would you recommend for a price cut if
management is profit oriented?
Explain!
“A”
1) Unit Price – 2.85
Unit Volume/Year – 750,000
“B”
Unit Price – 3.61
Unit Volume/Year – 1,250,000
2) 250000-750000/750000=.67%
3) 3.61-2.85/2.85 = .27%
4) Percent change in Quantity/Percent Change in Price
.67/.27 = Price of Elasticity of Demand
Best of luck!!!