2. A car company is considering a range of car offerings to extend its current single range. A year 1 estimate of expanding their car range is as follows:

------------------------------------------------------Car 1------------- Car 2 -------------Car 3

Volume--------------------------------------------- 3,200 ------------3,200 -------------1600

Selling price $1000 $2400 $1800

Variable cost/unit $700 -----------$1240------------- $1180

Fixed assembly costs $180,000 $272,000 $328,000

Additional information (further fixed costs)

Sales and Marketing $344,000

Administration $380,000

Occupancy & Rent $752,000

Required:

1. Calculate the weighted average contribution margin (WACM) per car.
2. Determine the break-even level of cars overall and per car-type.
3. The company is concerned about the estimates around price volume and costs. The company is thinking about raising the price of Car 1 by 15% with an impact of reducing sales volume by 10%. At the same time, the company would like to try decreasing the price of car 2 by 15% with an increase in sales units of 20%.

Whats the likely impact on planned profits? Show workings. What do you advise?

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