Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Alfred's organic dog food was formulated to provide for the nutritional needs of older pets. The company did not sell through retailers, but shipped directly

Alfred's organic dog food was formulated to provide for the nutritional needs of older pets. The company did not sell through retailers, but shipped directly to consumers. Consumers ordered through the company's web site or called the 1-800 number. An analysis of the company's records showed the patterns for a typical cohort of 50 customers in the table below. The company's contribution margin on this product was 31% of sales after shipping, order processing and other variable non-marketing costs. Each order included a brochure and reorder forms that cost $0.71 per shipment. Because the time between orders averaged 3 months, the company organized their analysis into period of 3 month duration. Almost no customers ordered after two years from their initial order. Alfred has historically used an annual discount rate of 8% to determine CLV.

3 Month Period 0 1 2 3 4 5 6
Customer Orders 50 27 16 12 8 4 2
Avg $/Order $32 $40 $32 $35 $25 $20 $20

What is the average contribution margin generated on an initial order if one includes the cost of the brochure and reorder forms?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting Tools for Business Decision Making

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

5th Edition

9781118560952, 1118560957, 978-0470239803

More Books

Students also viewed these Accounting questions