Donnas Data Storage (DDS) is located in Calgary, AB. DDS holds a 6.43% share of the total annual market of 156,237 solid-state backup storage devices. DDS provides its retailers with a margin of 36.4% on the retail price of $1234.00 per storage device. Brenda Smith, DDSs controller estimates that the variable costs are $326.21 per storage unit and fixed costs of $178,234 per year. In addition, shipping and packing costs of $25.12 per unit paid by DDS. Management costs are $295,000 per year, the annual advertising budget is $232,000 and the company has one salesperson with a salary of $97,000 (no commission percentage).

1. What is the Contribution Margin?

2. What is the current profit/loss?

3. An Alternative to changing in advertising spending, DDS is considering offering one Free storage file sorter with every storage device sold. These sorters cost DDS $52 each. If this promotional offer can increase storage device sales by 280 units, what would be the change in profits?

4. What would you advice the VP of marketing to do? Change advertising spending (raising or lowering) or offer the file sorter as Promotion or Do nothing. Need to explain in detail WHY?

5. The VP of Marketing thinks that DDS can sell 12% more storage devices than it does currently increasing the advertising budget by $25,000. Alternatively, if she reduces the advertising budget but $25,000, she estimated she will sell 121 fewer units. What would be the Break-Even in units if the advertising budget was raised? What would be the Break-Even in units if the advertising budget was lowered?