S2 Margin Analysis. If a six-pack of a fruit-soda sells for $6 retail and the re
ID: 2556292 • Letter: S
Question
S2 Margin Analysis. If a six-pack of a fruit-soda sells for $6 retail and the retailer's margin is 25% and the wholesaler-distributor margin is 33% then what is the manufacturer's price?
2- Price Setting Analysis. The Eco-spout entrepreneur wishes to pay himself and his son $25,000 each. He also plans $20,000 in extra fixed selling costs and a decrease in estimated variable sales costs from 10 cents down to five cents a unit. What is the new target share of reached market needed in the first year?
3 He also is able to get a better average variable manufacturing cost of 25 cents per unit and not 40 cents. He also decides to sell the unit wholesale for $0.99 and not $0.90. What is the new target share of reached market needed in the first year?
Explanation / Answer
Answer to Question Number 1
Retail price = $6
Retailer Margin = 25%
Therefore, Retailer profit = $6 * 25% = $1.50
Hence, Cost to Retailer = $6 - $1.50 = $4.50, this will be the sale price of wholesaler distributor
Now, Wholesaler distributor margin = 33%
Therefore, Wholesaler profit = $4.50 * 33% = $1.485
Hence, cost to wholesaler distributor = $4.50 - $1.485 = $3.015, this will be manufacturer's price.
Answer to Question Number 2
Payment to himself = $25,000
Payment to Son = $25,000
Extra fixed selling cost = $20,000
Therefore, total extra fixed expenses = $70,000
Now, there is a decrease in variable sales cost from 10 cents to 5 cents, meaning a reduction of $0.05 per unit.
Therefore, new target share of reached market needed will be = Total extra fixed expenses/saving in variable cost per unit
= $70,000/0.05 per unit
= 1,400,000 units
Answer to Question Number 3
Total fixed expense = $70,000
New sale price per unit = $0.99
New Variable cost per unit = $0.25
Therefore, new contribution per unit will be = $0.99 - $0.25 = $0.74
Hence new target share of market will be = Fixed cost/contribution per unit
= $70,000/$0.74 per unit
= 94,595 units
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