pricing policy

DATA
P 20
Q 2.000
R 40.000
VC 16.000  VCu = 8
FC 20.000 Q1) P/P = +20%  P = +20%*20 = +4
The formula to compute Iso-Contribution change in sales volume is the following:

 Q = -25%*2.000 = -500
The maximum sales loss that the company can incur without hurting profits is of 500 units or -25%.
Actual Change in Sales
Change in Contribution
=
Change in Profit (%)
(Units)
($) ($)
0,0%
0
8000

8.000
-10,0%
-200
4800

4.800
-20,0%
-400
1600

1.600
-25,0%
-500
0

0
-30,0%
-600
-1600

-1.600
-40,0%
-800
-4800

-4.800
-50,0%
-1000
-8000

-8.000

proposed price change=+20%; Initial Price=$20; %CM=60%; Semi-Fixed Costs=$500 per 400 Units

Q2) P/P = -10%  P = -10% X 20 = -2
To serve more customers the company needs to add additional trucks and drivers. Each truck would deliver up to additional 400 bottles daily, at a daily operating costs of $500.
With changes in Fixed Costs the formula to compute the relative change of Iso-Profit quantity is as follows:

Without changes in Fixed Costs the Iso-Contribution change in sales volume would be as follows:

 Q = +20%*2000 = +400 so  Q = +22,5%*2.000 = +450
Since each truck would deliver only up to additional 400 bottles daily, we need 2 more trucks, for a total increment in fixed costs of $1.000
 Q = +25%*2.000 = +500
The minimum sales gain that the company must obtain to make the 10% price cut worthwile amounts at 500 units more or +25%.

Q3)

Actual Change in Sales
Change in Contribution
−
Change in Fixed Costs
=
Change in Profit (%)
(Units)
($) ($) ($)
0,0%
0
-4000

0

-4.000
10,0%
200
-2000

500

-2.500
20,0%
400
0

500

-500
22,5%
450
500

1000

-500
25,0%
500
1000

1000

0
35,0%
700
3000

1000

2.000
40,0%
800
4000

1000

3.000
50,0%
1000
6000

1500 4.500

proposed price change=-10%; Initial Price=$20; %CM=60%;