Study Guide
COMPANY BACKGROUND: EasyFind manufactures and sells golf balls. The company is conducting a price test to find a better price point. Presently their golf balls sell for $19 per dozen. Their current volume is 5,470 dozen per month. They are considering reducing their sales price by 20% per dozen.
QUESTION 1: What are EasyFind's total current revenues per month?
$19 * 5,470 = $103,930 [+/- $3,118]
Total Revenues = Price * Volume
QUESTION 2: If EasyFind's variable costs are $10 per dozen, what is their total contribution each month at current prices?
($19 - 10) * 5,470 = $49,230 [+/- $1,477]
Total contribution = Unit Contribution * units sold
QUESTION 3: What will be EasyFind's new price if they choose to implement the price decrease?
$19 * (1 - 20%) = $15.20 [+/- $0.46]
New Price = Old Price * (1 - Price Reduction %) or New Price = Old Price - Old Price * Price Reduction%
QUESTION 4: If EasyFind's variable costs are $10 per dozen, what is the contribution per dozen balls at the new price point?
$15.20 - 10 = $5.20 [+/- $0.16]
New contribution per dozen balls = New price - Variable Costs
QUESTION 5: If EasyFind chooses to reduce its selling price to the new price point, how many units would they have to sell to generate the same monthly revenue?
$103,930 / $15.20 = 6,838 [+/- 205]
New Units Necessary to sell = Old total revenues / New Price
QUESTION 6: If variable costs are $10 per dozen, what is the new volume required to earn the same total contribution as before the price decrease?
$49,230 / $5.20 = 9,467 [+/- 284]
Divide original total contribution by the new unit contribution
QUESTION 7: What % increase in unit sales is necessary to achieve the same level of total contribution?
9,467 / 5,470 - 1 = 0.73 [+/- 0.02] (73%) [+/- 2%]
Increase = New Volume Required / Original volume – 1
COMPANY BACKGROUND: A jacket potato vendor charges $5.72 per spud sold. The variable cost of each potato served is $0.91. The stall has a fixed cost of
QUESTION 1: What are EasyFind's total current revenues per month?
$19 * 5,470 = $103,930 [+/- $3,118]
Total Revenues = Price * Volume
QUESTION 2: If EasyFind's variable costs are $10 per dozen, what is their total contribution each month at current prices?
($19 - 10) * 5,470 = $49,230 [+/- $1,477]
Total contribution = Unit Contribution * units sold
QUESTION 3: What will be EasyFind's new price if they choose to implement the price decrease?
$19 * (1 - 20%) = $15.20 [+/- $0.46]
New Price = Old Price * (1 - Price Reduction %) or New Price = Old Price - Old Price * Price Reduction%
QUESTION 4: If EasyFind's variable costs are $10 per dozen, what is the contribution per dozen balls at the new price point?
$15.20 - 10 = $5.20 [+/- $0.16]
New contribution per dozen balls = New price - Variable Costs
QUESTION 5: If EasyFind chooses to reduce its selling price to the new price point, how many units would they have to sell to generate the same monthly revenue?
$103,930 / $15.20 = 6,838 [+/- 205]
New Units Necessary to sell = Old total revenues / New Price
QUESTION 6: If variable costs are $10 per dozen, what is the new volume required to earn the same total contribution as before the price decrease?
$49,230 / $5.20 = 9,467 [+/- 284]
Divide original total contribution by the new unit contribution
QUESTION 7: What % increase in unit sales is necessary to achieve the same level of total contribution?
9,467 / 5,470 - 1 = 0.73 [+/- 0.02] (73%) [+/- 2%]
Increase = New Volume Required / Original volume – 1
COMPANY BACKGROUND: A jacket potato vendor charges $5.72 per spud sold. The variable cost of each potato served is $0.91. The stall has a fixed cost of