The marketing manager suggested that to improve EBITDA and increase sales volume, the  Sustainable Deluxe  Box should be sold at the same margin as the Standard Box. Base your answers on the calculations performed in Sheet 4 ( tab 4)   to indicate how much Largo will need to charge for the Sustainable Deluxe  Box. Indicate how many  Sustainable Deluxe  Boxes the company will have to sell at the new price to break even. Discuss whether changing the price is a viable option for Largo. Provide evidence from the Excel workbook, Tab 4.

2. If Largo Global Inc. is unable to sell the  Sustainable Deluxe Box for more than $27.10, discuss possible alternatives. Doing the same thing LGI is already doing is not an option; you must suggest how to improve EBITDA.

Discuss the facts that should be considered in determining whether manufacturing the  Boxes in-house could lead to a price reduction. No calculations are required for Question 5

  

Question 1 The sustainability manager is concerned about the long term sustainability implications of Deluxe boxes on the environment and suggest changing to sustainable materials for the production of a Sustainable Deluxe Box. If the company switches to their current quantity of Deluxe Boxes sold to Sustainable Deluxe Boxes there will be some cost implications. The Sustainable Deluxe Boxes could be made cheaper, and the sustianability manager believes that the company could bring down the selling price to $15 per box which would entice current Deluxe Box customers to accept the switch over. The new Sustainable Deluxe Boxes will attract 60% of total fixed costs calculated for the Deluxe Boxes under the ABC method. The number of boxes sold will not be affected by this new selling price, as the company will in future have to do marketing to sell more boxes at the lower price. Calculate the new Gross profit and profit percentage. Complete the grey spaces Quantity Sellin price per unit Sales VC Contribution Fixed Costs Profit GP % Question 2 Required profit Less: Existing profit Equals: Difference in additional profit required Sales Less Required GP% Equals: Mark up percentage on cost Variable Costs Fixed Cost Total Costs Sales Units sold Sales Price per unit Standard Boxes Sustainable Deluxe 108.00 Fixed Costs Net Profit Profit % $ $ S Selling price Less: Variable costs Contribution S Fixed Costs S S Breakeven Quantity BreakEven Value The manager is concerned about the massive reduction in profit from the Sustainable Deluxe Boxes but realizes that because of the change in materials, they will no longer be able to charge the price of $18 per box. The manager wants to achieve at least the same profit percentage for the deluxe boxes as they have on standard boxes. How much additional profit are they requiring? Complete the grey spaces. $ Question 3 Work out the percentage that they should mark up on the costs to achieve the same profit % as for the standard boxes. Complete the grey spaces S $ $ S 18.80 $ 2,030.40 1,080.00 950.40 Question 4 Use the percentage calculated in Question 3 to determine how much the company should charge per product to reach the same profit percentage as for the standard boxes. Assume the company can still sell the same quantity of the Sustainable Deluxe Boxes as for the Deluxe Boxes. Complete the grey spaces Totals $ 16.84 S 933.56 45.98% $ S S S 45.98% See Tab 3 2.41% See Q 1 above 43.57% S Question 5 Prove that your calculation in Q4 is correct. Complete the grey boxes. Proof: Per Unit Total $ Sales Less VC S Contribution $ %6 100% 45.98% 54.02% 180.00 83.50 263.50 487.77 18 27.10 18.00 15.00 270.00 $ 180.00 90.00 $ 83.50 $ 6.50 $ 487.77 S 180.00 307.77 83.50 224.27 45.98% 2.41% Question 5 The marketing manger is concerned that the change could havea significant impact on sales as ciustomers may see the sustaiable boxes as an inferiror product for which they still have to pay only a little bit less than the orginal price of the Deluxe Boxes. How many boxes would the company have to sell to break even on the new Sustainabale Deluxe Boxes based on the new selling price? Complete the grey boxes. $ Totals 27.10 10.00 17.10 100.34 Total 5.87 159.02 126.00 2,300.40 1,260.00 1,040.40 27.10 10 17.10 100.34 940.06 40.87%