Production = 100000*90% = 90000 (a) GP% = (500000-300000)/500000 = 40% Price % =

Question

Production = 100000*90% = 90000

(a) GP% = (500000-300000)/500000 = 40%

Price % = -20%

Unit % = GP% / (GP% + Price %) -1 = 40% / (40% - 20% ) - 1 = 100%

Required change in unit sales = 100%

(b) Gross Margin before price change = 40%

Gross Margin after price change = (GM before change - Price %) / (1 - Price %) = (40% - 20%)/(1-20%) = 25%

(c) Current production = 90,000 units

Current market share = 70%

Current Market size = 90000/70% = 128,571 units

Market size growth in one year = 20%

Market share size one year (units) = 128571*(1+20%) = 154,286 units

Explanation / Answer

You are a Product Manager for your company. Your VP of Sales you drop the price for your product by 20%. This is necessary, according to your VP, to combat a new competitor entering your market. requested that The long standing policv of vour firm is that anv price reductions have to be Gross Margin neutral. In other words, they cannot affect the $ value of the Gross Margin The most recent market research shows that your company has 70% market share. The remaining share is equally divided between two other established competitors It also estimates that the market for your products grows at the rate of 20% peryear Currently, your manufacturing plant works at 90% of capacity. That is, it produces 100,000 units per year. The revenues are $500,000 per year and the Cost of Goods Sold is $300,000. Calculate the following: a) the required change in unit sales that will keep the $ level of Gross Sales unchanged b) Gross Margin (%) after the price change c) the total market size (in units) at the end of the first year

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.