Every Halloween, Glacier Ice Cream Shop offers a trick-or-treat package of 25 co

Question

Every Halloween, Glacier Ice Cream Shop offers a trick-or-treat package of 25 coupons for $4. The coupons are redeemable by children 12 years or under, for a single-scoop cone, with a limit of one coupon per child per visit. Coupon sales average 500 books per year. The printing costs are $50. A single-scoop cone of Glacier ice cream normally sells for $0.60. The variable costs of a single-scoop cone are $0.40. Determine the loss if all coupons are redeemed without any other effect on sales. Assume all coupons will not be redeemed. With regular sales unaffected, determine the coupon redemption rate at which Glacier will break even on the offer. Assuming regular sales are not affected and one additional single-scoop cone is sold at the regular price each time a coupon is redeemed, determine the coupon redemption rate at which Glacier will break even on the offer. Determine the profit or loss incurred on the offer if the coupon redemption rate is 60 percent and: One-fourth of the redeemed coupons have no effect on sales. One-fourth of the redeemed coupons result in additional sales of two single-scoop cones. One-fourth of the redeemed coupons result in additional sales of three single-scoop cones. One-fourth of the redeemed coupons come out of regular sales of single-scoop cones.

Explanation / Answer

Few fact calculations :

=>Package of 25 coupons sold for $4.

=> Revenue per coupon = $4/25= $0.16

=>Variable cost per single-scoop cone = $0.40

=>Contribution per single-scoop cone = $0.60 - $0.40 = $0.20

=>Printing Cost of books i.e. $ 50, is not considered computation of profit or loss and kept as notional and obsolite.

Solution of (a) Revenue of 500 coupon books sold = 500 * $4 = $2000

Less: Variable Cost of single-scoop cone / coupon = 500 * 25 * $0.40 = $5000

Loss on all coupons redeemed without any other effect on sales = $ 3000

(b) Redemption rate at which Glacier will break even on the offer, if all coupons will not be redeemed and regular sales unaffected :

Revenue on sale of 25 coupons = $ 4

Variable cost on Single scoop cone = $ 0.40

Break even on the offer = $4 / $0.40= 10 coupons

Redemption Rate = 10/25*100= 40%

(c) One additonal single-scoop cane is sold at the regular price each time a coupon is redeemed, the coupon redemption rate at which Glacier with break even on the offer :

Revenue for 25 coupons book sold = $4

Add: Contribution one additional single-scoop cone

per coupon on per 25 coupons book= $020 * 25 = $5

Total Sale on per 25 coupons book = $9

Break even on the offer = $9 / $0.80 (i.e. variable cost per coupon * 2) = 11.25 coupons

   Redemption Rate = 11.25 / 25 * 100 = 45 %

(d) The profit or loss incurred on the offer if the coupon redemption rate is 60% and

Coupons redeemed = 500 * 25 * 60% = 12500 * 60% = 7500 coupons

One - fourth of the redeemed coupons = 7500 / 4 = 1875 coupons = 75 books

1. Total cost per book = (60 % of 25 coupons) * (variable cost per single-scoop cone) = 15 * $0.40 = $6

Total revenue per 25 coupons book sold = $4

Loss on One-fourth redeemed coupons = ($ 4 - $ 6) * 75 =- $150

2. Revenue of additional two single scoop for 1850 coupons redeemed = 1875 * 0.4 = $750

Gain on 1/4th coupons redeemed = $ 750 - loss i.e. -150 = $ 600

3. Revenue of additional three single scoop for 1850 coupons redeemed = 1875 * 0.6 = $1125

Gain on 1/4th coupons redeemed = $ 1125 - loss i.e. -150 = $ 975

4. Revenue of additional one single scoop for 1850 coupons redeemed = 1875 * 0.2 = $375

Gain on 1/4th coupons redeemed = $ 375 - loss i.e. -150 = $ 225

Total gain if the coupon redeemed rate is 60% = $1800 (i.e. 1+2+3+4)

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