Note on Marketing Arithmetic

Running head: MARKETING ARITHMETIC EXERCISE

Marketing Arithmetic Exercise

Melanie Moreno

MMBA 6530 Marketing

Dr. Disney-Kantner

1. If the retail price is fixed at $1.00, what effect does increasing the retail and wholesale margins have on the manufacture’s selling price? Explain why this is the case?

If the retail price remains fixed at $1.00 and there was an increase in retail and wholesale margins it would lead to a reduction in the manufacturer’s selling price. If the company increases the retail or wholesale margin it is also increasing the profit available to the company because it is calculated on the retail price. However, with no change in retail price because it remains fixed, the manufacturer would have to reduce its selling price in order to provide the extra benefit to the retailer or wholesaler.

The manufacturer selling price = 0.59

The Wholesaler selling price = 0.67

The wholesale margin is 12% (0.67*0.12 = 0.08)

Price = Margin + Cost

0.67 = 0.08 + Cost

Retail Selling Price $1.00

Retail Margin is 33%

Price = Margin + Cost

100% = 33% + 67%

$1.00 = 0.33+0.67

Manufacturing Cost = 0.09/unit

Shipping, breakage, insurance, etc. cost = 0.02/unit

Salespeople commission (10%) = (0.59*10)/100 = 0.059

Total variable costs = 0.09 +0.02+0.059 = 0.169 unit

Contribution = Revenues-Variable Costs

0.59-0.169 = 0.421/unit

2. Define unit contribution in your own words. Is a high or low unit contribution preferable for profitability?

Unit contribution is the amount of money that would be left to contribute to the fixed cost or profit once the unit variable cost is subtracted from the sales price. The unit contribution helps the company calculate the break-even level of sales. In general a high unit contribution would be more preferable to profitability because it is calculated by looking at the total revenues and subtracting the variable costs and dividing it by sales. If a company is able to obtain a high stream of...