Question

1. You have a small business selling bottles of 321 Blatzoff, a reasonably nasty-tasting energy drink. You sell each bottle of 321B0 for $6.50. • Each bottle costs you $3.00 to purchase from the manufacturer. • You pay your salesperson a 10% commission on all sales on top of a base salary of $1,100 per month Your rent is $1,700 per month. Other miscellaneous costs (insurance, utilities, etc.) average $400 per month. • You are pretty sure you can sell 1,500 bottles per month at the $6.50 price point. A. How many bottles do you need to sell to breakeven each month (round up to the nearest whole bottle)? B. How much monthly income will you have if you sell 1,500 bottles per month? You are considering offering a 10% off coupon for each bottle to increase sales. You think sales will increase to 2,100 bottles per month lassuming each bottle will be purchased with a coupon). A fixed coupon processing fee of $400 will be incurred each month if you choose this strategy. C. How many bottles will you need to sell each month to breakeven with the coupon strategy (round up to the nearest whole bottle)? Assume sales commissions will still be based on the $6.50 "list price." D. How much monthly income will you have if you sell 2,100 bottles each month with this coupon strategy? Another option you are considering involves spending $4,200 per month on an advertising campaign. You think that you can raise monthly sales to 3,200 bottles at an undiscounted sales price of $6.50 (i.e., no coupons, etc.). E. How many bottles will you need to sell each month to breakeven with the advertising strategy (round up to the nearest whole bottle)? F. How much monthly income will you have if you sell 3,200 bottles each month with the advertising strategy? Which strategy would be best if you thought you could sell 3,400 bottles per month either with the coupons or the advertising? In other words: G. How much income would you make with the coupon strategy if you were able to sell 3,400 bottles per month? H. How much would you make with the advertising strategy if you were able to sell 3,400 bottles per month?
If you could post the work with the answers, that would be very appreciated. thank you!

Answer 1

	Sellng Price /Unit	6.5
	Purchase price	3
	Seller commission	0.65
	Fixed Salary	1100
	Fixed Rent	1700
	Misc Fixed Cost	400
	Unit Sold	1500
	Break Even Unit:
	At Break Even Unit Contribution = Fixed Cost
A.	Fixed Cost	3200
	Contribution Required	3200
	Contribution Per Unit = Selling Price - Variable costs
	Cont/ Unit	2.85
	No Of Units Required for $ 3200 Contribution	1123
B.	Monthly Income @1500 Units
	Contribution /Unit	2.85
	Total Contribution	4275
	Fixed Cost	3200
	Profit	1075
C.
	Fixed Proessing chg	400
	Revised Fixed Cost	3600
	contribution Reuired for Braek Even	3600
	New Selling Price	5.85
	Contribution /Unit Revised	2.2
	No Of Units Required for $ 3600 Contribution	1636
D.
	No Of Units To be sold'	2100
	Contribution /Unit Revised	2.2
	Total Contribution	4620
	Revised Fixed Cost	3600
	Profit	1020
E.
	Advertisement Cost	4200
	Revised Fixed Cost	7400
	contribution Reuired for Braek Even	7400
	Contribution /Unit (No Coupon)	2.85
	No Of Units Required for $ 7400 Contribution	2596
F.	No Of Units To be sold'	3200
	Contribution /Unit Revised	2.85
	Total Contribution	9120
	Revised Fixed Cost	7400
	Profit	1720
G.		Coupon	Advertisement
	No Of Units To be sold'	3400	3400
	Contribution /Unit Revised	2.2	2.85
	Total Contribution	7480	9690
	Revised Fixed Cost	3600	7400
	Profit	3880	2290
	Coupon Strategy is better with higher profit