Intermediate: Non-graphical CVP analyses A retailer with a chain of stores is planning product promotions for a future period. The following information relates to a product which is being considered for a four week promotion:

Normal weekly sales (i.e. without promotion), 2400 units at £2.80 per unit.

Normal contribution margin, 45% of normal selling price.

Promotional discount, 20% (i.e. normal selling price reduced by 20% during the promotion). Expected promotion sales multiplier, 2.5 weekly sales units expected during the promo¬ tion is 2.5 x 2400 = 6000 units).

Additional fixed costs incurred to run the promotion (i.e. unaffected by the level of promo¬ tional sales) are forecast to be £5400. Unit variable costs would be expected to remain at the same level as normal.

Required:

(a) Calculate the expected incremental profit/

(loss) from the promotion. (8 marks)

(b) Calculate the sales units multiplier that would be required during the promotion to break even compared with a no-promotion situation.

(6 marks)

(c) Describe other factors that should be consid¬

ered before making a decision regarding the promotion.

LO1