Fall 2021 MAR 4804/U03 (Thurs)
Financial/Analytical Question Make Up. You should specifically identify any assumptions that you make and justify the decision(s) made.
This FAQ explores some marketing implications of the concept of “price elasticity of demand”. Consider the 2 following income statements (limited in detail) of 2 different brands (DEF, XYZ) of the Furton Corporation:
Brand “ABC” Brand “DEF”
FY2020 Income Statement FY2020 Income Statement
Revenue: $1,250,000.00 $1,000,000.00
No. of units sold 2,500 4,250
Variable costs: $850,000.00 $350,000.00
Gross Profit: $400,000.00 $650,000.00
Attributable $125,000 $175,000
Fixed Costs
Calculate the contribution margin ($) for each of the 2 BRANDS. Which brand is more profitable? Show your reasoning. (2 points)
Management has suggested a 15% price cut for each brand, ABC & DEF.
Calculate the new price for each brand, namely ABC & DEF. (2 points).
For each brand calculate the number of unit sales necessary to maintain the same contribution margin ($) after the 15% price cut. (4 points)
What is the breakeven elasticity of demand for each brand? (2 points)
Assume that management has decided to expend $100,000 to promote 1 of the 2 brands in the coming fiscal year (2022). If management is profit oriented, which brand would you recommend? Carefully explain your logic and identify the assumptions that you make. (4 points)
NOTE: FOR (c) IGNORE THE PRICE CUT OF (b) ABOVE.
Note: points are in parentheses.
The submission (FAQ Make Up) is due 11:59 PM, Wednesday, Dec. 8. (Use an attachment in CANVAS EMAIL. You are to submit on an individual basis.
Either type answers in MSWord or scan to a pdf file. Do not use JPG! Make sure that your name is on the FILE itself.
If you submit in WORD via CANVAS and fail to include your name on the file you may have 1 point (of 14) deducted. If you have submitted in a read only file (e. g. pdf) you may have 2 points deducted.
Note: 0.5 points may be deducted for each hour, or part thereof, that a submission is late, with a maximum of 3 points per 24 hours. This is based on 14 points total!
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