Reference no: EM13936557
Accounting:
Problems - Sensitivity Analysis and Cost-Volume-Profit.
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Instructions are as followed:
Crosby Inc. has just developed a new product called The Cruiser. with a variable manufacturing cost of $32 per unit.
The marketing vice president has developed three marketing approaches to selling The Cruiser. Rank the three approaches, highest to lowest, in order of net contribution margin.
Alternative:
1 Set a selling price of $38 and have the organization's sales persons sell The Cruiser at a 12% commission. There would be no advertising program. Estimated sales would be 12,000 units under this plan.
2 Set a selling price of $40 and have the organization's sales persons sell The Cruiser at a 10% commission. Develop a $35,000 multi-media advertising program.
Estimated sales under plan 2 would be 14,000 units.
3 Rely on wholesalers to sell The Cuiser. Crosby would sell The Cruiser to the wholesaler at $34 per unit. There would be no advertising program. Estimated sales would be 16,000 units under this plan.
Rank the three approaches, highest to lowest, in order of net contribution margin (show all of your work and use formulas where appropriate in the cells).
Crosby Inc.
CM Income Statement
The Cruiser
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Alternative 1 |
Alternative 2 |
Alternative 3 |
| Selling Price |
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| Variable costs |
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| Commissions |
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| Contribution Margin |
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| Unit sales |
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| Total CM |
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| Advertising costs |
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| Net CM |
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If alternative 3 is chosen based on net CM and the actual sales do not meet expectations by 20% how much should Crosby increase the selling price to the wholesaler to make $32,000 in CM?
Prove your answer by showing all of your work.
Obtain the cost information and then rank the three approaches, highest to lowest, in order of net contribution margin. Be sure to answer all questions within the spreadsheet."