Part I: Determine both the breakeven point and the expected profit or loss for e
ID: 2553877 • Letter: P
Question
Part I: Determine both the breakeven point and the expected profit or loss for each of price points listed. *Use the examples provided on the previous page as a guide.
Part II: Respond to the questions; review the number of points in your response. When asked to describe or discuss, do not simply copy a definition from the text.
Save this document only to your computer, complete and then upload to the Assignment Folder “Pricing Assignment”.
Deductions will be taken for lack of name on the Working Document, inability to follow instructions and poor grammar/spelling.
Part I: BEP (Breakeven Point) (18 pts)
Price
Fixed Costs
Avg. Variable
Costs
BEP in Units
BEP in Dollars
Expected Demand
Projected
Profit/Loss
$$
$1.25
$12,000
$1.20
240,000
$300,000
80,000
-8,000
1.30
12,000
1.20
70,000
1.40
12,000
1.20
65,000
1.50
12,000
1.20
55,000
1.75
12,000
1.20
40,000
2.00
12,000
1.20
25,000
2.50
12,000
1.20
10,000
Part II: Questions: (12 pts)
Using the chart, if the pricing objective were to maximize your profit, at what price point would you set your price? (1 pt)
Using the chart, besides $1.25, at which other price point (s) do you have a loss? (1 pt)
Describe a situation in which a marketer would intentionally set price low and ultimately end up with a loss on a product. Include an example of a pricing objective discussed in the text in your response that would be appropriate for this situation. (2 pts)
Based on the relationship between price and demand in the chart, is demand elastic or inelastic? (1pt)
Discuss why you selected your answer. (1 pt)
Describe the terms elastic and inelastic demand, and cite an example of a product that typically has that demand. (4 pts)
Elastic:
Inelastic:
What does the term “fixed cost” mean, and give an example of a typical fixed cost in a business? (2 pts)
Price
Fixed Costs
Avg. Variable
Costs
BEP in Units
BEP in Dollars
Expected Demand
Projected
Profit/Loss
$$
$1.25
$12,000
$1.20
240,000
$300,000
80,000
-8,000
1.30
12,000
1.20
70,000
1.40
12,000
1.20
65,000
1.50
12,000
1.20
55,000
1.75
12,000
1.20
40,000
2.00
12,000
1.20
25,000
2.50
12,000
1.20
10,000
Explanation / Answer
Break even point in units= Fixed costs / Contribution unit
Break even sales = Break even point x sales price per unit
Contribution per unit = Sales price each unit - Variable cost of each unit
Expected profit / (Loss) = Expected demand x (sales price - variable cost) - Fixed costs
Part II
If objective is to maximise profit then pricing needs to be set @ $1.75 per unit. This price gives the maximum profit of $10,000.
At $ 1.30 also there is loss.
The demand is elastic in nature. We can say that because with every increase in price, the demand for the product falls in the market.
The price elasticity of demand measures the sensitivity of the quantity demanded to changes in the price. Demand is inelastic if it does not respond much to price changes, and elastic if demand changes a lot when the price changes
Example of elastic demand: Cars, Electronic appliances.
Example of inelastic demand: Gasoline, Salt, Sugar.
Fixed cost are those costs which will be constant no matter what is the volume of business Examples of fixed costs include rent.
Price Fixed Costs Avg. Variable BEP in Units BEP in Dollars Expected Projected Costs Demand Profit/Loss $$ $1.25 $12,000 $1.20 240,000 $300,000 80,000 -8,000 $1.30 $12,000 $1.20 120,000 $156,000 70,000 -5,000 $1.40 $12,000 $1.20 60,000 $84,000 65,000 1,000 $1.50 $12,000 $1.20 40,000 $60,000 55,000 4,500 $1.75 $12,000 $1.20 21,818 $38,182 40,000 10,000 $2.00 $12,000 $1.20 15,000 $30,000 25,000 8,000 $2.50 $12,000 $1.20 9,231 $23,077 10,000 1,000Related Questions
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