• Read the Star, Heskett, and Levitt article found in this week's readings. At the end of the article, read the ?Brand X? scenario contained within the Exercises (but do not answer the questions that follow).
• Review the calculations contained in the Marketing Arithmetic Calculations spreadsheet in this week?s Readings, which demonstrates how to arrive at the values requested in questions 1 through 4 of the article.
• Experiment with changing initial data values listed at the top of the spreadsheet, paying attention to the effects those changes have on the calculated values listed under each question.

Submit by Day 7the completed Marketing Arithmetic Exercise Calculations spreadsheet. In addition, submit a separate Word document in which you answer the following questions:

• If the retail price is fixed at $1.00, what effect does increasing the retail and wholesale margins have on the manufacturer's selling price? Explain why this is the case.
• Defineunit contributionin your own words. Is a high or low unit contribution preferable for profitability? Justify your answer.
• How do increases in the retail and wholesale margins (again, with a fixed retail price) affect the unit contribution? Be sure to explain why.
• If you increase any of the fixed cost factors, what happens to 1) the number of units the company needs to sell to break even and 2) the market share necessary to break even? If fixed costs rise, is this good, bad, or of no importance? Explain your answer.
• What change (increase or decrease) to the following factors increases the profit impact and why?
  • Retail margin/unit
  • Brand market share
  • Advertising budget
• Many marketing decisions have multiple implications. For example, while increasing price improves profit per unit, too large a price increase may decrease unit sales, ultimately decreasing profits overall. Keeping this kind of tradeoff in mind, explain how changes to the three factors mentioned in the prior question could potentially conflict with one another in terms of strategy for increasing the profit impact.

Tips for working with the spreadsheet:

• The sheet has been set up so the initial data values remain at the top while you scroll down through the remainder of the sheet. For this exercise, you should only need to edit initial data values, not the formulas in the cells below.
• Read the cell comments to the right of cells C25, C32, and C40 for tips on understanding the formulas.

General Guidance on Assignment Length: Your Word document will typically be 3?4 pages in length (1.5 to 2 pages, if single spaced). Refer to the Week 7 Assignment Rubric for specific grading elements and criteria for this assignment. Your Instructor will use this rubric to assess your work.

Marketing Arithmetic Exercise Calculations Initial Data: Margin Structure Factors: Variable Cost Factors: Retail Price: $ Retail Margin/Unit: Wholesale Margin/Unit: 1.00 33% 12% Market Factors: Variable Mfg. Cost/Unit: $ Shipping, etc./Unit: $ Commissions: 0.09 0.02 10% Fixed Cost Factors: Question 1: What is the unit contribution for Brand X? Key Formulas: Wholesale Selling Price = Retail Price x (100% - Retail Margin/Unit) Manufacturer's Selling Price = Wholesale Selling Price x (100% - Wholesale Margin/Unit) Commissions/Unit = Commission x Manufacturer's Selling Price Contribution per Unit = Manufacturer's Selling Price - Variable Costs/Unit Step 1: Determine Manufacturer's Selling Price Wholesale Selling Price: Manufacturer's Selling Price: Step 2: Determine Total Variable Costs Variable Mfg. Cost/Unit: Shipping, etc./Unit: Commission/Unit: Total Variable Costs per unit: Step 3: Determine Unit Contribution Unit Contribution: Question 2: What is Brand X's break-even point? Key Formula: Breakeven Units = Fixed Costs divided by Unit Contribution Fixed Costs: Breakeven Units: Question 3: What market share does Brand X need to break even? Key Formula: Breakeven market share = Breakeven Units divided by Total Units in Market Breakeven Market Share: Question 4: What is Brand X's profit impact? Key Formulas: Unit Volume = Total Units in Market x Market Share Profit Impact = (Unit Volume x Unit Contribution) - Fixed Costs Unit Volume: Profit Impact: Total Units in Market: Brand X Market Share: Fixed Mfg. Costs: $ Advertising Budget: $ Prod. Mgr. Salary: $ 20,000,000 24% 900,000 500,000 35,000