Allegro Answers
1. Using the Simple Sheet, what happens when Allegro cuts advertising and selling effort to 0$ and raises price to $500/unit? Comment.
Setting advertising and selling efforts to $0 while raising the price to $500 has the following effects on the Simple Sheet:
Projected Industry Sales, Company Market Share, and Sales Volume stay the same
Projected Sales Revenue increases 100% to $34,839,064
Projected Gross Margin per Unit increases 250% to $350
Projected Net Contribution Margin increases 567.8%% to $20,487,345
Projected Net Profit increases 1809.3% to $20,387,345
According to this information, management would be advised to raise price and cut all advertising and selling efforts.
2. Repeat exercise 1 using the Smart Sheet.
Setting advertising and selling efforts to $0 while raising the price to $500 has the following effects on the Smart Sheet:
Projected Industry Sales stay the same
Projected Company Market Share and Sales Volume decrease 100% to 0
Projected Gross Margin per Unit increases 250% to $350
Projected Gross Contribution Margin decreases 100% to 0
Projected Net Profit decreases 474.6% to $-4,000,000
According to this information, management is advised to keep price, advertising and selling efforts at the current level, or to re-run the model at different levels.
3. Using the Smart Sheet, what is the profit maximizing level of advertising, selling effort and price? (Hint: Requires Solver) Would you recommend the firm implement this policy? Why or why not?
Using the solver tool, we find that the profit maximizing levels are:
Price = $275
Advertising = $1,589,271
Selling = $1,033,027
We note that:
Projected Market Share decreases by 10% to 2.7%
Projected Net Profit increases by 24% to $1,324,061
Based on the information, management is advised to implement this policy only if they are looking to increase profits. This is because the increase in profits come at a market share loss of 0.3%. If
Setting advertising and selling efforts to $0 while raising the price to $500 has the following effects on the Simple Sheet:
Projected Industry Sales, Company Market Share, and Sales Volume stay the same
Projected Sales Revenue increases 100% to $34,839,064
Projected Gross Margin per Unit increases 250% to $350
Projected Net Contribution Margin increases 567.8%% to $20,487,345
Projected Net Profit increases 1809.3% to $20,387,345
According to this information, management would be advised to raise price and cut all advertising and selling efforts.
2. Repeat exercise 1 using the Smart Sheet.
Setting advertising and selling efforts to $0 while raising the price to $500 has the following effects on the Smart Sheet:
Projected Industry Sales stay the same
Projected Company Market Share and Sales Volume decrease 100% to 0
Projected Gross Margin per Unit increases 250% to $350
Projected Gross Contribution Margin decreases 100% to 0
Projected Net Profit decreases 474.6% to $-4,000,000
According to this information, management is advised to keep price, advertising and selling efforts at the current level, or to re-run the model at different levels.
3. Using the Smart Sheet, what is the profit maximizing level of advertising, selling effort and price? (Hint: Requires Solver) Would you recommend the firm implement this policy? Why or why not?
Using the solver tool, we find that the profit maximizing levels are:
Price = $275
Advertising = $1,589,271
Selling = $1,033,027
We note that:
Projected Market Share decreases by 10% to 2.7%
Projected Net Profit increases by 24% to $1,324,061
Based on the information, management is advised to implement this policy only if they are looking to increase profits. This is because the increase in profits come at a market share loss of 0.3%. If