Question
PRICING WORKSHEET - # 3 1. Suppose you own a copy business that targets college students. A) Assume the following Number of college students in
PRICING WORKSHEET - # 3
1. Suppose you own a copy business that targets college students.
A) Assume the following
Number of college students in the market: 25,000
Average number of copies per student per year 125
Your companys estimated share of the total market 13%
SOLVE FOR THE FOLLOWING:
Total annual market demand
Estimated annual company demand
Estimated monthly demand
Estimated weekly demand
B) Given the following for your copy business:
Annual Expenses:
Paper: $ 4,062.50 Salaries: $ 30,000
Rent: $ 12,000 Hourly labor: $ 62,400
Insurance: $ 2,500 Maintenance contract $ 2,000
Advertising: $ 1,800 Utilities: $ 2,400
Other Supplies: $ 5,000
Total Fixed Cost: Total Variable Cost:
Fixed Cost/unit: Variable Cost/unit:
C. Calculate the selling price per copy if you must have a markup of 25% on the selling price.
D. What is the selling price per copy if you desire a 150% markup on cost?
E. What is the markup on selling price with a $ .50 selling price per copy?
F. What is the markup on cost with a $ .50 selling price?
G. If you charge $.45 per copy, what is the highest your expenses can be and still maintain a
25% markup on selling price?
H. If you charge $.45 per copy, what is the highest your expenses can be and still
maintain a 150% markup on costs?
2. Using the information in question # 1 above, assume you will charge on average $.40 per
copy.
A) Calculate your monthly revenue.
B) Assume you lower the price from $.30 to $.24 per copy and you demand increases to10,812
copies weekly. Determine the elasticity of your demand. What can you infer about your
market?
C) Assume you raise the price from $.30 to $.45 per copy and your demand decreases by 1000
copies weekly. Determine the elasticity of your demand. What can you infer about your
market?
3.. Using the information in Question # 1 A and B above
A) Compute the Breakeven for each of the following:
1. Total annual revenue of $182, 812.50
2. Total annual revenue of $121, 875
3. Total annual revenue of $97,500
FORMULAS AND RATIOS ELASTICITY Price Elasticity of demand = %change in quantity E= _Q2-Q11/01 % change in price _(P2 - P1)/P1 Elastic - greater than 1 Inelastic - less than 1 MARKUP PRICING When solving for markup Mark up on Cost: MU(C): (Selling Price - Cost) / Cost Mark up on Selling Price : MU(r): (Selling Price - Cost) / Selling Price When solving for selling price MUC): Selling Price = Total cost x (1.00 + MU%) MU(r): Selling Price = Total cost 1.00 - MU% When solving for costs MUC): Costs = Selling Price/ (1+MU%) MU(r): Costs = Selling Price X (1 - MU%) BREAKEVEN Break even = Fixed Costs Cont. Margin Cont. Margin = Selling price - Var. Cost FINANCIAL RATIOS Gross margin ratio = gross margin net sales Net Income ratio = net income net sales Operating expense ratio = total operating expenses net sales Returns and Allowances ratio = returns and allowances net sales Inventory turnover rate = costs of goods sold Average inventory at cost ROI = net income total investmentStep by Step Solution
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