Can I have the detlied answers for 2. A) Calculate monthly revenue.B), C)

PRICING WORKSHEET - # 1

ESTIMATING DEMAND and DEMAND ELASTICITY

(refer to Slides # 9, 10)

1. You own a flower shop and you need to estimate demand for your services.

A) Assume the following:

Number of households in the market: 600,000

Average number of arrangements purchased per

household per year 4

Companys estimate share of the total market 5%

SOLVE FOR THE FOLLOWING:

Total annual market demand

600,000x4= $2,400,000

Estimated annual company demand

120,000

Estimated monthly company demand

10,000

Estimated weekly demand

2308

B) Given the following for your flower shop: (refer to slides # 14 and 15)

Annual Expenses:

Salaries: $ 35,000 Hourly labor: $10.00

Flowers: $7.00 Gas: $2,000

Rent: $14,800 Advertising: $1,800

Insurance: $3,000 Utilities: $ 2,400

Supplies: $ 3.00

Total Fixed Costs: $59,000 Total Var. Costs: $2,400,000

Fixed Costs per unit: 0.49 Variable Cost per unit: $20

(refer to slides # 18, 19 for explanation of Markup)

To solve the following, refer to the attached formula sheet. You must first determine what I am asking you to solve for cost, selling price or markup. Then look for the category under the markup section on the formula sheet. (it will say When solving for Cost When solving for Markup etc. ) Then read the question carefully to see if I am asking based on cost or selling price. On the formula sheet MU(c) stands for markup on Cost and MU(r) stands for Mark up on Selling Price (the lowercase r is for retail because the consumer selling price is at the retail level).

C. Calculate the selling price per arrangement if you must have a markup of 55%

on the selling price.

$45.53

D. What is the selling price per arrangement if you desire a 120% markup on cost?

$45.08

E. What is the markup on selling price with a $40.00 selling price?

48.78%

F. What is the markup on cost with a $40.00 selling price?

95.22%

G. If you charge $50.00 per flower arrangement, what is the highest your

expenses can be and still maintain a 54% markup on selling price?

$23

H. If you charge $50.00 per flower arrangement, what is the highest your

expenses can be and still maintain a 120% markup on costs?

$22.73

(refer to slides # 11, 12, 13)

2. Using the information from ques. #1 and the selling price you calculated in C

above,

A) Calculate monthly revenue.

B) Assume you lower the average selling price to $40.00 per arrangement

and your monthly demand increases to 10,850 orders. Determine the

elasticity of your demand. What can you infer about your market?

C) Assume you lower the average selling price to $40.00 per arrangement and

your monthly demand increases to 11,300 orders. Determine the elasticity

of your demand. What can you infer about your market?