Break Even and ROI Analysis Questions Compute the break even point in sales dollars if fixed costs are $200,000 and the total contribution margin is 20 of revenue Barney Company makes and sells stuffed animals One product, Michael Bears, sells for $28 per bear Michael Bears have fixed costs of $100,000 per month and a variable cost of $12 per bear How many Michael Bears must be produced and sold each month to break even Go to Page 2 for ROI Exercise The need to justify a firms promotional investment, using some of return on investment assessment, is starting to become more common practice For each of the following decisions, determine whether the promotional expenditure generates a positive return on investment The first one has been done as an example for you (Note Just do simple calculations and do not calculate net present values ) ACTIVITY TASK Brand A Calculations Cost of extra advertising $200,000 Extra sales $1m Sales will increase from $1m to $2m for one year only Profit on extra sales $100,000 (That is, 10 margin on extra sales) Our gross margin is 10 of sales Profit loss after advertising $100,000 loss Therefore, should not undertake the advertising Brand B Calculations Cost of extra advertising $500,000 Sales to increase from $10m to $20m for one year only Our gross margin is 10 of sales Brand C Calculations Cost of extra advertising $5,000,000 Sales to increase from $100m to $200m, This increased sale level should be maintained for at least two years Our gross margin is 5 of sales QUESTIONS Start by completing the above two examples How difficult will it be to estimate the likely increase in sales prior to undertaking the promotional campaign Therefore, how reliable are the estimates of return on investment that you have calculated How would firms typically find determine the assumptions information they need to do these calculations Are there any situations where a firm would undertake a promotional campaign that did not appear to be financially justified

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 21, 2024

Break Even and ROI Analysis Questions Compute the break-even point in sales dollars if fixed costs are $200,000 and the total contribution margin is 20%

Break Even and ROI Analysis Questions

Compute the break-even point in sales dollars if fixed costs are $200,000 and the total contribution margin is 20% of revenue.

Barney Company makes and sells stuffed animals. One product, Michael Bears, sells for $28 per bear. Michael Bears have fixed costs of $100,000 per month and a variable cost of $12 per bear. How many Michael Bears must be produced and sold each month to break even?

Go to Page 2 for ROI Exercise

The need to justify a firms promotional investment, using some of return on investment assessment, is starting to become more common practice. For each of the following decisions, determine whether the promotional expenditure generates a positive return on investment. The first one has been done as an example for you. (Note: Just do simple calculations and do not calculate net present values.)

ACTIVITY/TASK

Brand A	Calculations
Cost of extra advertising = $200,000	Extra sales = $1m
Sales will increase from $1m to $2m for one year only	Profit on extra sales = $100,000 (That is, 10% margin on extra sales)
Our gross margin is 10% of sales	Profit/loss after advertising = $100,000 loss
	Therefore, should not undertake the advertising

Brand B	Calculations
Cost of extra advertising = $500,000
Sales to increase from $10m to $20m for one year only
Our gross margin is 10% of sales

Brand C	Calculations
Cost of extra advertising = $5,000,000
Sales to increase from $100m to $200m,
This increased sale level should be maintained for at least two years
Our gross margin is 5% of sales

QUESTIONS

Start by completing the above two examples.

How difficult will it be to estimate the likely increase in sales prior to undertaking the promotional campaign? Therefore, how reliable are the estimates of return on investment that you have calculated?

How would firms typically find/determine the assumptions/information they need to do these calculations?

Are there any situations where a firm would undertake a promotional campaign that did not appear to be financially justified?