Spring 2020 MAR 4804/U02 (MON) Financial/Analytical Question #2 (FAQ#2): note that there are conceptual issues in each of the Financial/Analytical Assignments. You should specifically identify any assumptions that you make and justify the decision(s) made. This FAQ explores some marketing implications of the concept of "price elasticity of demand". Consider the 2 following income statements (limited in detail) of 2 different brands (DEF, XYZ) of the Furton Corporation: Brand "DEF" Brand "XYZ" FY2019 Income Statement FY2019 Income Statement $1,100,000.00 Revenue: $1,210,000.00 No. of units soldyr.: 2,500 Variable costs: $800,000.00 Contribution: $410,000.00 4,000 $400,000.00 $700,000.00 a) Calculate the contribution margin for each of the 2 brands. Outline your reasoning. (4 points) b) Management has suggested a 15% price cut for both brands, DEF & XYZ. For each calculation below briefly explain the necessary assumption(s). i) Calculate the breakeven total number of units sold for each brand; (6 points) ii) Calculate the breakeven price elasticity of demand for each brand. (6 points) c) Assume that management has decided to expend $100,000 to promote 1 of the 2 brands in the coming fiscal year (2020). Assuming that management is profit oriented, which brand would you recommend? Carefully explain your logic and identify the assumptions that you make. (4 points) Spring 2020 MAR 4804/U02 (MON) Financial/Analytical Question #2 (FAQ#2): note that there are conceptual issues in each of the Financial/Analytical Assignments. You should specifically identify any assumptions that you make and justify the decision(s) made. This FAQ explores some marketing implications of the concept of "price elasticity of demand". Consider the 2 following income statements (limited in detail) of 2 different brands (DEF, XYZ) of the Furton Corporation: Brand "DEF" Brand "XYZ" FY2019 Income Statement FY2019 Income Statement $1,100,000.00 Revenue: $1,210,000.00 No. of units soldyr.: 2,500 Variable costs: $800,000.00 Contribution: $410,000.00 4,000 $400,000.00 $700,000.00 a) Calculate the contribution margin for each of the 2 brands. Outline your reasoning. (4 points) b) Management has suggested a 15% price cut for both brands, DEF & XYZ. For each calculation below briefly explain the necessary assumption(s). i) Calculate the breakeven total number of units sold for each brand; (6 points) ii) Calculate the breakeven price elasticity of demand for each brand. (6 points) c) Assume that management has decided to expend $100,000 to promote 1 of the 2 brands in the coming fiscal year (2020). Assuming that management is profit oriented, which brand would you recommend? Carefully explain your logic and identify the assumptions that you make. (4 points)
