Marketing Metrics Answers

mensurables Mastery Worksheets be designed to be in class exercises that your students can work on in class. This is a grasp document that provides all worksheets psyches and answers. You can modify or change it as needed in order to prep are one page two sided exercises for your students to contribute out in class. You can also easily turn the answers into powerpoint slides to review the answers in class. Table of Contents Worksheet Metric 1 Expense Types2 Worksheet Metric 2 Percentage Change5 Worksheet Metric 3 market place fate & Market Analytics8 Worksheet Metric 4 percentage adjustment11Worksheet Metric 5 Mark-up & strand14 Worksheet Metric 6 Pricing wholesale to Retail17 Worksheet Metric 7 Break-Even20 Worksheet Metric 8 Return on Marketing Investment (ROMI)23 Worksheet Metric 1 Expense Types 1) The homely Chair Company makes reclining hold ins at its plant and sells them exclusively through its own retail store. It has the following expenses Plant rent and taxes = $12,000. 00 Office and management expenses = $220,000. 00 Machinery and equipment purchased = $ light speed,000. 00 Direct materials = $27. 00/ tone down Direct labour = 4 hours/chair $14. 00/hour Transportation = $5. 0/chair Commercial store front building block purchase = $500,000. 00 Advertising be = $century,000. 00 gross gross sales staff reward before commissions = $250,000. 00 Commission = $12. 00/chair a) sepa govern the Comfy Chair Companys inconstant appeals. b) What is the total cost to produce and sell each reclining chair? c) Identify the Comfy Chair Companys headstrong be. d) What are the total fixed costs? e) Identify the one-time fixed costs incurred by the Comfy Chair Company. f) What are the total one-time fixed costs? dish out (a)Direct materials = $27. 00/chair Direct labour = 4 hours/chair $14. 0/hour Transportation = $5. 00/chair Commission = $12. 00/chair (b)$ snow. 00/chair (c)Plant rent and taxes = $12,000. 00 Office and management expenses = $ 220,000. 00 Advertising costs = $ speed of light,000. 00 cut-rate sales staff wages = $250,000. 00 (d)$582,000. 00 (e)Machinery and equipment purchased = $100,000. 00 Commercial store front unit = $500,000. 00 (f)$600,000. 00 2) Thompson Toi allowries, Inc. has developed an addition to its mens cologne line tentatively branded Ode dToad Cologne. It costs 45 cents to produce each 60mL feeding bottle, and heavy publicize expenditures in the first year would cost $900,000.Ode dToad Cologne is tolld at $7. 50 for a 60mL bottle. a) What is the variable cost per unit to produce a bottle of Ode dToad? b) What are the total fixed costs to produce and sell Ode dToad? serve up (a)Variable cost per unit = $0. 45 (b)Total fixed costs = $900,000 3) Executives of Radical Recordings Ltd. produced an album entitled Sunshine/Moonshine by the Starshine Sisters resound. The cost and price information was as follows Album run $1. 00 Songwriters royalties $0. 0 Recording artists royalties $0. 70 Direct material and labour costs to produce each album $1. 00 be of producing the album (studio fee, advertising, promotional$100,000. 00 expenses, etc) Selling price $7. 00 ) Identify the variable costs, and amounts, that go into producing each album b) Identify the fixed costs, and amount, for producing the album Answer a) Variable costs Album mask$1. 00 Songwriters royalties$0. 30 Recording artists royalties$0. 70 Direct material and labout$1. 00 Total Variable make up per social unit$3. 00 b) Fixed costs Cost of producing the album = Total Fixed Costs = $100,000. 00 4) You are the owner of a prompt agency that sells trips to university students. You are creating a package to sell an nightlong trip to Blue Mountain. Identify the fixed and variable costs associated with the package ased on the information below. After identifying the costs, take care the total cost based on 3 full busses of students. The package go away include ski lift tatters, access to a VIP pa rty and one nights hotel accommodation. It will cost you $300 to print 1,000 full colour posters and some other $400 to purchase party supplies for the VIP society. Each room costs $80 per night, with quaternary people per room. A bus holds 40 people and the bus company will charge you $500 per bus. The ski hill is offering you a point of $20 per ski lift pass. You also know that you need to purchase a ? page ad in the campus paper at a cost of $100 per week for 6 weeks. Variable Costs Total Fixed Costs Total (description & social unit Cost) (Description) Busses ($500/bus) $1500 Posters $300 Hotel Rooms ($80/room) $2400 Party Supplies $400 Ski lift passes ($20/pass) $2400 Newspaper ad ($100/wk) $600 Total Variable Costs $6300 Total Fixed Costs $1300 Worksheet Metric 2 Percentage Change 1) Eds is a small deli, which has had great success in its second year of operation. taxations in grade 2 are $570,000, compared with $380,000 in course of instruction 1 . What is Eds year-over-year sales growth value? Answer socio-economic class-over- form Sales harvest-tide = (Year 2 Year 1) / Year 1 * 100% = ($570,000 $380,000) / $380,000 * 100% = 50% 2) A pair of jeans that normally sells for $75 is marked down 30% and thence reduced at the cash register another 10%?Is this a total decrement of 40%? If not, what is the percent reduction? Answer Let determine 1 be the initial price of $75, let determine 2 be the price after the 30% mark down, and set 3 be the price after additional 10% reduction at the cash register. Initial decline = -30% = (Price 2 Price 1) / Price 1 -0. 3 = (Price 2 $75) / $75 -0. 3 * $75 = Price 2 $75 Price 2 = -0. 3 * $75 + $75 = $52. 50 Second Reduction = -10% = (Price 3 Price 2) / Price 2 -0. 1 = (Price 3 $52. 50) / $52. 50 -0. 1 * $52. 50 = Price 3 $52. 50 Price 3 = -0. 1 * $52. 50 + $52. 50 = $47. 25 Total Percent Reduction = (Price 3 Price 1) / Price 1 * 100% = ($47. 5 $75) / $75 * 100% = 37% 3) A smal l retain chain posts impressive circumstances growth figures, moving from $58 million to $107 million in sales from one year to the next. Despite this dynamic growth, however, analysts cast doubt on the familys business model, warning that its existing stores growth measure suggests that its concept is failing. found on the chart below, and assuming that stores were opened on the first twenty-four hour period of Years 1 and 2 What is the retail chains year-over-year sales growth rate? What is the year-over-year sales growth or decrease for each store, as appropriate? What is the same store (existing and not expansion) year-over-year growth? memory Opened R steadyue Year 1 (millions) gross Year 2 (millions) A Year 1 $10 $9 B Year 1 $19 $20 C Year 1 $20 $15 D Year 1 $9 $11 E Year 2 n/a $15 F Year 2 n/a $12 G Year 2 n/a $7 H Year 2 n/a $18 $58 $107 AnswerChain-wide Year-over-Year Sales Growth = (Year 2 Year 1) / Year 1 * 100% = ($107 $58) / $58 = 84. 5% Store A Ye ar-over-Year Sales = (Year 2 Year 1) / Year 1 * 100% = ($9 $10) / $10 = -10% Store B Year-over-Year Sales = (Year 2 Year 1) / Year 1 * 100% = ($20 $19) / $19 = 5. 26% Store C Year-over-Year Sales = (Year 2 Year 1) / Year 1 * 100% = ($15 $20) / $20 = -25% Store D Year-over-Year Sales = (Year 2 Year 1) / Year 1 * 100% = ($11 $9) / $9 = 22. 22% Same Store Sales Year 1 = $10 + $19 + $20 + $9 = $58 million Same Store Sales Year 2 = $9 + $20 + $15 + $11 = $55 million Same Store Year-over-Year Growth = (Year 2 Year 1) / Year 1 * 100% = ($55 $58) / $58 = 5. 17% ) Do you agree with the analysts position regarding the retail chain in question 3, wherefore or why not? If you were the owner of the retail chain would you continue to open stores? If not what would you do? Answer Agree with the analysts. Existing stores sales decreased from Year 1 to Year 2 growth declined 5. 17%. I would not continue to open stores. I would address the decline in revenue / find out why the stores ha ve negative growth in year 2. Worksheet Metric 3 Market Share & Market Analytics implement the industry overview below to answer the questions that follow Mobile Phones in the unit of measuremented States The mobile speech sound market in the wholeed States covers the sales of mobile phone devices, smart phones, and PDAs (personal digital assistants).Table X below provides the annual sales volume of mobile phones from 2004 to 2009. Table XX details the market share of the top handset producers. Table 1 US Mobile Phones Sales Volume & Value 2004-2009 2004 2005 2006 2007 2008 2009 000 units 66,556. 1 87,543. 1 110,228. 1 120,629. 4 130,309. 9 134,673. 5 US$ bn 4. 1 5. 4 6. 9 8. 3 10. 1 10. 6 Table 2 Mobile Phones Company Shares 2005-2009 % retail revenue share 2005 2006 2007 2008 2009 Samsung America Inc 15. 7 15. 1 17. 3 22. 1 25. 4 L. G. Electronics USA 15. 9 16. 5 15. 2 20. 6 21. 5 Motorola Inc 30. 4 34. 8 33. 5 22. 8 16. 4 Kyocera outside(a) Inc 5. 4 4. 9 4. 0 9. 2 9. 9 Research in Motion Ltd 0. 7 1. 1 2. 6. 0 9. 0 Apple Inc - - - 4. 9 7. 4 Nokia building blocked States 15. 4 18. 1 12. 5 7. 5 6. 5 Sanyo North America Corp 4. 3 4. 2 4. 5 - - Apple Computer Inc - - 1. 4 - - early(a)s 12. 1 5. 9. 0 6. 9 3. 8 Total 100. 0 100. 0 100. 0 100. 0 100. 0 1) What is the annual 2009 revenue in dollars of the top 4 mobile phone companies? Answer tax revenue Market Share (%) = Revenue ($) / Total Market Sales Revenue ($) Revenue ($) = Revenue Market Share (%) * Total Market Sales Revenue ($) Samsung America Inc Revenue = 25. 4% * $10. 6 zillion = 0. 254 * $10. 6 billion = $2. 6924 billion L. G. Electronics USA Revenue = 21. 5% * $10. 6 billion = 0. 215 * $10. 6 billion = $2. 279 billionMotorola Inc Revenue = 16. 4% * $10. 6 billion = 0. 164 * $10. 6 billion = $1. 7384 billion Kyocera International Inc Revenue = 9. 9% * $10. 6 billion = 0. 099 * $10. 6 billion = $1. 0494 billion 2) If the performance of the US mobile phone market is expected to c ontinue to grow from 2009 to 2012 at a rate of 5% per year, what will the size of the market be by the end of 2012? Answer Revenue 2009 = $10. 6 billion Revenue 2010 = Revenue 2009 + 5% * Revenue 2009 = $10. 6 billion + 0. 05 * $10. 6 billion = $10. 6 billion + $0. 53 billion = $ 11. 13 billion Revenue 2011 = Revenue 2010 + 5% * Revenue 2010 = $11. 13 billion + 0. 05 * $11. 13 billion = $11. 3 billion + $0. 5565 billion = $11. 6865 billion Revenue 2012 = Revenue 2011 + 5% * Revenue 2011 = $11. 6865 billion + 0. 05 * $11. 6865 billion = $11. 6865 billion + $0. 584325 billion = $12. 270825 billion = $12. 271 billion 3) gigantic retail chains form a leading distribution channel in the US mobile phone market, account statement for 28% of the total value in 2009. In comparison, wireless service providers account for 23%, independent retail merchants 15%, and other sources account for 32%. Based on the 2009 revenues for the mobile phone market in the US, what is the share of revenue in dollars for each of the different distribution channels? AnswerRevenue Market Share (%) = Revenue ($) / Total Market Sales Revenue ($) Revenue ($) = Revenue Market Share (%) * Total Market Sales Revenue ($) super Retail Chains Revenue = 28% * $10. 6 billion = 0. 28 * $10. 6 billion = $2. 968 billion Wireless Service Providers Revenue = 23% * $10. 6 billion = 0. 23 * $10. 6 billion = $2. 438 billion Independent retail merchants Revenue = 15% * $10. 6 billion = 0. 15 * $10. 6 billion = $1. 590 billion Other Revenue = 32% * $10. 6 billion = 0. 32 * $10. 6 billion = $3. 392 billion 4) take the Three immobile Concentration Ratio and the Herfindahl Index for the US Mobile Phone market (using 2009 market share values).What can you infer about the market concentration from these two metrics? Answer Three Firm Concentration Ratio = 25. 4% + 21. 5% + 16. 4% = 63. 3% Herfindahl Index = Sum (market share)(2 = Sum (. 254(2 + . 215(2 + . 164(2 + . 099(2 + . 090(2 + .074(2 + . 065(2 + . 038(2 ) = 0. 167 With the top 3 companies accounting for 63. 3% of the market and a Herfindahl Index of 0. 167 the market is not highly concentrated. 5) You have just become the Director of Retail Sales for a large US retail chain. What stir will the growing sales of mobile phones have on your business? Answer With a 5% ontogeny per year, impact will be minor. Large retail chains sell thousands of crossways. There will likely be a similar make up in related products, such as chargers, skins, cases, travel chargers, prepaid phone cards, etc. There may be a need to increase inventory levels and shelf space devoted to mobile phones and related products There may be a slight increase in consumer flow into stores, which would affect cross and upselling other products to consumers walking in for mobile phones. Worksheet Metric 4 Contribution Margin 1) Mohan, an artist, draws caricatures on the waterfront pier. It costs him approximately $5 in materials (paper and markers) for each carica ture he makes. He sells each caricature for $20. Calculate the part valuation reserve in terms of dollars and percent. Answer Contribution Margin ($) = Revenue COGS = $20 $5 = $15Contribution Margin (%) = Contribution per Unit ($) / Sale Price per Unit ($) * 100% = (Sale Price per Unit Variable Cost per Unit) / Sale Price per Unit *100% = ($20 $5) / $20 * 100% = $15 / $20 * 100% = 0. 75 * 100% = 75% 2) The Hotel Grill Bar sells a set lunch for $12. The food cost of sales used in producing each set lunch is $5. Additional variable costs are $3 per lunch. The fixed costs of the restaurant are $3 per meal. What is the contribution permissiveness expressed in dollars and percent? Variable Expenses = $5 + $3 = $8 Contribution Margin ($) = Revenue Variable Expense = $12 $8 = $4Contribution Margin (%) = Contribution per Unit ($) / Sale Price per Unit ($) * 100% = (Sale Price per Unit Variable Cost per Unit) / Sale Price per Unit * 100% = ($12 $8) / $12 * 100% = $4 / $12 * 100% = 0. 33 * 100% = 33. 3% 3) You are an online retail merchant of CDs, promoting sales via a no postage and packaging offer. You purchase your CDs from record companies for $18. 75. Packaging and a padded envelope cost $1. 00 per CD and postage is $2. 00. If you sell the CDs for $25 what is your contribution perimeter in dollars and percent? Variable Expenses = $18. 75 + $1. 00 + $2. 00 = $21. 75Contribution Margin ($) = Revenue Variable Expense = $25 $21. 75 = $3. 25 Contribution Margin (%) = Contribution per Unit ($) / Sale Price per Unit ($) * 100% = (Sale Price per Unit Variable Cost per Unit) / Sale Price per Unit * 100% = ($25 $21. 75) / $25 * 100% = $3. 25 / $25 * 100% = 0. 13 * 100% = 13% 4) You are the owner of an exclusive night niner that is considering holding a New Years Eve party. You have determined that you need a minimum contribution gross profit curse of 40% in order to turn a sugar for a single night event at your club.Additionally, in hosting all-you-can-e at and all-you-can-drink events in the past, you know that the food cost is $20 per person and the beverage cost is $17 per person. Finally, the house band charges a fee of $5 per person in attendance. What should you charge for a ticket? Answer Variable Expenses = Food + Beverage + Band = $20 + $17 + $5 = $42 Contribution Margin (%) = Contribution per Unit ($) / Sale Price per Unit ($)* 100% = (Sale Price per Unit Variable Cost per Unit) / Sale Price per Unit * 100% 40% = (Sale Price per Unit $42) / Sale Price per Unit * 100% 0. 0 * Sale Price per Unit = Sale Price per Unit $42 $42 = Sale Price per Unit 0. 4 * Sale Price per Unit $42 = (1 0. 4) * Sale Price Per Unit Sale Price per Unit = $42 / 0. 6 Sale Price per Unit = $70 5) As the owner of the nightclub in question 4, you learn that a neighbouring nightclub is selling tickets for their New Years Eve party at $60/ticket, which is making your event less attractive. Should you lower your ticket price to match theirs given the variable costs in question 4 and knowing that your fixed costs will be $20/person? If not, why not and what might you do to increase tickets sales? Answer No. The nightclub would lose $2 per ticket change if they matched the neighbouring clubs price.To increase sales Reduce ticket price and reduce variable costs (lower priced food, drink, band) Ensure that event is differentiated in a way that justifies the premium ticket price Perhaps the other club is not offering all-you-can-eat or all-you-can-drink, or the band is not as well-known, if thats the case, ensure that your potential customers are aware of the differences Worksheet Metric 5 Mark-up & Margin 1) A ready reckoner software retailer uses a markup rate of 40%. If the retailer pays $25 each for computer games sold in its stores, how much do the games sell for? Answer The markup is 40% of the $25 cost, so the markup is (0. 0) * ($25) = $10 Then the selling price, being the cost positive(p) markup, is $25 + $10 = $35 The refore the games sell for $35. 2) A golf pro shop pays its wholesaler $40 for a certain club, and then sells that club to golfers for $75. What is the retail markup rate? Answer The gross dough in dollars is calculated as sales price less cost $75 $40 = $35 The markup rate is then calculated Markup (%) = Gross Profit / Cost *100 = $35 / $40 *100 = 87. 5% 3) A shoe store uses a 40% markup on cost. Find the cost of a pair of shoes that sells for $63. Answer The cost of the shoes is calculated as follows Selling Price = Cost + Markup ($) Cost + (Markup (%) * Cost) $63 = Cost + (40% * Cost) $63 = Cost + (0. 4 * Cost) $63 = (1 + 0. 4) * Cost $63 = 1. 4 * Cost Cost = $63 / 1. 4 = $45 4) In 2009, Donna Manufacturing sold 100,000 widgets for $5 each, with a cost of goods sold of $2. What is the companys margin? Identify a way that Donna Manufacturing can increase its profit margin? Answer First we have to calculate the gross profit Gross Profit = Selling Price Cost of Goods Sold = $5 $2 = $3 Now we can calculate the margin Margin (%) = Gross Profit / Sales * 100 = $3 / $5 * 100 = 60% ship canal to increase the profit margin Decrease cost of material Decrease cost of manufacturing Increase sales price per unit Decrease COGS 5) If a product costs $100 and is sold with a 25% markup at a retail store, what would be the retailers margin on the product? What should be the markup and selling price if the retailer desires a 25% margin? Why might the retailer be seeking to increase their margin? Answer a) To calculate the margin, we first have to determine the sales price Markup ($) = Markup (%) * Cost = 25% * $100 = $25 Selling Price = Cost + Markup ($) = $100 + $25 = $ one hundred twenty-five Margin (%) = Markup / Price * 100 = $25 / $125 * 100 = 20% Therefore the retailers margin would be 20% when the product is sold at a 25% markup. ) To calculate the markup and selling price at a 25% margin Selling Price = Cost / (1 Margin (%)) = $100 / (1 25%) = $100 / (1 0. 25 ) = $133. 33 Markup ($) = Selling Price Cost = $133. 33 $100 = $33. 33 Markup (%) = Markup ($) / Cost * 100 = $33. 33 / $100 * 100 = 33. 33% Therefore to obtain 25% margins, the product would have to be sold at $133. 33 with a markup of 33. 33%. c) Reasons for increase include Increase in fixed costs (rent, tax, commission, wages, etc. ) Increase in demand and/or decrease in supply Other competitors/retailers charge to a greater extent for the product and the higher(prenominal) margin is a result of increasing sales price to match Worksheet Metric 6 Pricing sweeping to Retail ) You are a manufacturer of widgets that sells your products to a wholesaler who in turn sells directly to retailers. You have developed a new widget and you know that your competitions product retails for $23 in hardware stores. You know yours is slightly better, and are pretty sure your product could sell for $27. Assuming a retail margin of 33. 3% and a wholesale margin of 25%, what is the wholesalers s elling price, and how much can you sell the widgets to the wholesaler for? Answer If the suggested retail price of the widget is $27, then Wholesaler Selling Price ($) = Retail Selling Price * 1 Retail Margin (%) = $27 * (1 33. 3%) $27 * (1 0. 333) = $18. 00 Manufacturer Selling Price = Wholesale Selling Price * 1 Wholesale Margin = $18. 00 * (1 25%) = $18. 00 * (1 0. 25) = $13. 50 2) As a small appliance manufacturer, your cost to manufacture and package your coffee maker is $10/unit. You want this to be a cash cow, so you decide to sell the coffee maker to your wholesaler for $19/unit. You know that the wholesalers margin is 25%, and that retailers typically take 33. 3% margins on small appliances. What will your coffee maker retail for rounded to the nearest whole number? Answer Manufacturer Selling Price = Wholesale Selling Price * 1 Wholesale MarginWholesale Selling Price = Manufacturer Selling Price / 1 Wholesale Margin = $19 / (1 25%) = $19 / (1 0. 25) = $25. 33 Who lesale Selling Price = Retail Selling Price * 1 Retail Margin Retail Selling Price = Wholesale Selling Price / 1 Retail Margin = $$25. 33 / (1 33. 3%) = $25. 33 / (1 0. 333) = $37. 98 Therefore the coffee maker will retail for $38. 00 3) A bearing manufacturer buys raw materials for $0. 50 per unit, turns the raw materials into a roller bearing, and then sells the bearings to a wholesaler for $1. 00 per unit. The wholesaler then sells the bearings to retailers for $2. 00 per unit, and finally consumers buy the bearings for $3. 00 per unit.What is the per unit margin in dollars for the manufacturer, wholesaler and retailer? What is the percentage margin for the manufacturer, wholesaler and retailer? What is the per unit margin in dollars and percentage margin for the entire chain? Answer (a) Manufacturer margin ($) = $1. 00 $0. 50 = $0. 50 Wholesaler margin ($) = $2. 00 $1. 00 = $1. 00 Retailer margin ($) = $3. 00 $2. 00 = $1. 00 (b)Manufacturer margin (%) = $0. 50 / $1. 00 * 100 = 50% Wholesaler margin (%) = $1. 00 / $2. 00 * 100 = 50% Retailer margin (%) = $1. 00 / $3. 00 * 100 = 33. 3% (c)Chain margin ($) = $3. 00 $0. 50 = $2. 50 Chain margin (%) = $2. 50 / $3. 00 * 100 = 83. 3% 4) If the raw material cost goes up by $0. 5 per unit for the bearing manufacturer in question 3, what will be the retail price charged to consumers if all members in the chain go for the same percent margin? What is the effect of the raw material increase to the consumer? Why is it important to understand channel margins and pricing practices? Answer (a) Manufacturer margin = 50% Wholesaler margin = 50% Retailer margin = 33. 3% Raw material cost = $0. 50 + $0. 25 = $0. 75 Manufacturer margin = (Price Cost) / Price * 100 50 = (Price $0. 75) / Price *100 0. 5 * Price = Price $0. 75 $0. 75 = Price 0. 5 * Price $0. 75 = Price (1 0. 5) Price = $0. 75 / 0. 5 = $1. 50 Therefore the manufacturer sells the bearings for $1. 50 Wholesaler margin = (Price Cost) / Price * 100 50 = (Price $1. 0) / Price *100 0. 5 * Price = Price $1. 50 $1. 50 = Price 0. 5 * Price $1. 50 = Price (1 0. 5) Price = $1. 50 / 0. 5 = $3. 00 Therefore the wholesaler sells the bearings for $3. 00 Retailer margin = (Price Cost) / Price * 100 33. 3 = (Price $3. 00) / Price *100 0. 333 * Price = Price $3. 00 $3. 00 = Price 0. 333 * Price $3. 00 = Price (1 0. 333) Price = $3. 00 / 0. 667 = $4. 50 Therefore the retailer sells the bearings for $4. 50 (b) The price has increased by $1. 50 to the consumer (or 50% increase). (c) To evaluate the effects of price changes within the channel to the end consumer. Worksheet Metric 7 Break-Even ) learner Mousetraps wants to know how many units of its Magic Mouse Trapper it must sell to draw even. The product sells for $20. It costs $5 per unit to make. The companys fixed costs are $30,000. Answer Break-Even Volume () = Fixed Costs ($) / Contribution per Unit ($) Contribution per Unit = Sales Price per Unit Variable Cost per Unit = $20 $5 = $15 Break-Even Volume () = $30,000 / $15 = 2,000 mousetraps 2) Apprentice Mousetraps wants to know how many dollars worth of its Deluxe Mighty Mouse Trapper it must sell to break even. The product sells for $40 per unit. It costs $10 per unit to make. The companys fixed costs are $30,000. AnswerBreak-Even Revenue ($) = Fixed Costs ($) / Contribution Margin (%) Contribution Margin (%) = Contribution per Unit / Selling Price per Unit Contribution per Unit ($) = Price per Unit Variable Cost per Unit = $40 $10 = $30 Contribution Margin (%) = $30 / $40 * 100 = 75% Break-Even Revenue ($) = $30,000 / 75% = $40,000 -OR- Break-Even Revenue ($) = Break-Even Volume () * Price per Unit ($) Break-Even Volume () = Fixed Costs ($) / Contribution per Unit ($) Contribution per Unit = Sales Price per Unit Variable Cost per Unit = $40 $10 = $30 Break-Even Volume () = $30,000 / $30 = 1,000 units Break-Even Revenue ($) = 1,000 * $40 = $40,000 3) Johns Clothing Store employs three salespeople.It g enerates annual sales of $1 million and an bonny contribution margin of 30%. Rent is $50,000. Each sales person costs $50,000 per year in salary and benefits. How much would sales have to increase for John to break even on hiring an additional salesperson? Answer If the additional fixed cost of a salesperson is $50,000 and with an average contribution margin of 30%, then Break-Even Revenue ($) = Fixed Costs ($) / Contribution Margin (%) = $50,000 / 30% = $166,666. 67 Therefore sales would have to increase by $166,666. 67 for John to break even on hiring an additional salesperson. 4) A corn farmer wishes to identify how many bushels of corn he must sell to cover his fixed cost at a given price.The farmer has costs consisting of $500 in real estate taxes, $700 interest on a bank loan, and $800 in other fixed expenses. The variable cost per bushel is $1, and covers labour, corn seed, herbicides and pesticides. If the price per bushel is $2, how many bushels must he sell to break even? Answer Break-Even Volume () = Fixed Costs / Contribution per Unit Fixed Costs = $500 + $700 + $800 = $2000 Contribution per Unit ($) = Price Variable Cost per Unit = $2 $1 = $1 Break-Even Volume () = $2000 / $1 = 2000 bushels 5) If the farmer in question 4 sells sole(prenominal) enough bushels to break even, what is his annual profit? Identify two ways the farmer could increase his annual profit.Answer Farmers annual profit = $0. The farmer could increase his profit by Growing more corn Increasing the price he charges per bushel Reducing his costs Pay off loan or find lower interest rate Reduce labour costs Find lower seed costs Find lower herbicide and pesticide costs Changing to a more salaried crop Find alternative use for the land that offers a better return Worksheet Metric 8 Return on Marketing Investment (ROMI) 1) A marketer is evaluating two selling campaigns. It is estimated that Campaign 1 would generate incremental revenues of $250,000, at an incremental co st of $50,000 and a contribution margin of 30%.Campaign 2 would generate incremental revenues of $50,000, at an incremental cost of $20,000 and a contribution margin of 50%. If the marketer is basing their decision solely on ROMI, which campaign should they go ahead with? Answer ROMI for Campaign 1 is found by ROMICampaign1 = (Incremental Revenue * Contribution Margin Cost) / Cost = ($250,000 * 30% $50,000) / $50,000 = 50% ROMICampaign2 = (Incremental Revenue * Contribution Margin Cost) / Cost = ($50,000 * 50% $20,000) / $20,000 = 25% Therefore the marketer should select Campaign 1. 2) A clothing retailer is considering investing in a newspaper advertising campaign to generate more sales.The campaign is expected to cost $3,000 in creative agency fees and $9,000 in circulation costs, while increasing revenues from $110,000 to $170,000. The retailers contribution margin averages 25%. What would be the return on the marketing investment of the newspaper campaign? Answer Incremental Revenue = $170,000 $110,000 = $60,000 Marketing Costs = $3,000 + $9,000 = $12,000 ROMI = (Incremental Revenue * Contribution Margin Cost) / Cost = ($60,000 * 25% $12,000) / $12,000 = 25% 3) An alternative option for the clothing retailer (in the previous question) is to invest in a direct air campaign targeting previous customers only a fraction of the reach of the newspaper campaign .The cost of the direct mail campaign would be $1,000, but would only result in increasing revenues to $150,000. What is the return on marketing investment in this case? Answer Incremental Revenue = $150,000 $110,000 = $40,000 ROMI = (Incremental Revenue * Contribution Margin Cost) / Cost = ($40,000 * 25% $1,000) / $1,000 = 900% 4) If the clothing retailer (in the previous questions) decides to execute both the newspaper and direct mail campaign what would be the combined return on marketing investment. Answer Newspaper Incremental Revenue = $60,000 Direct Mail Incremental Revenue = $40,000 Tot al Incremental Revenue = $60,000 + $40,000 = $100,000 Total Cost = $12,000 + $1,000 = $13,000ROMI = (Incremental Revenue * Contribution Margin Cost) / Cost = ($100,000 * 25% $13,000) / $13,000 = 92. 31% 5) Which campaign should the clothing retailer in the previous questions execute for maximum return on marketing investment? If the retailer is more concerned with maximizing revenue growth, should they execute the newspaper campaign, direct mail campaign or both? Why? Answer a) Direct mail campaign (900% ROMI) as it is significantly greater than the newspaper campaign (25%) and combined execution (92. 31%). b) Execute both as the revenue increase is $100,000 greater than the $60,000 as a result of the newspaper campaign and the $40,000 as a result of the direct mail campaign.