Canastar Group sells three lines of prepared foods into a marketplace where total demand is 240 million cases. Canastar’s market share is 2 ½ percent; the average selling price per case is $30 and their variable costs per case are $23. Canastar spends $15 million on marketing and sales expenses. Other operational expenses add up to $6 million. The lemonade mix and the corndogs are both positive in terms of net profit before taxes, with lemonade contributing the greater share. Canastar’s cheese line produces a net negative profit. Last year, the Group’s internally-produced accounting information system was voted best in the food industry for its ability to track inventory and accurately predict cost variations.
1. What is Canastar Group’s marketing return on sales (ROS)? Show your work.
a) 10.6%
b) 12%
c) 15%
d) 140%
e) 180%
2. If Canastar Group lowered its prices by 10% and spent an additional $5 million on marketing, causing a boost in market share to 4%, what would the approximate net marketing contribution be? Show your work.