Study Guide

1334 words 6 pages
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

or divide your calculation of the new volume required in question 4 (with the increased cost of hiring the press), by the original volume required in question 1 and subtract 1.
QUESTION 6: If changing to color increases variable costs by \$.40, what is the percentage decrease in contribution margin resulting from the switch to color?
((\$2.21 - \$0.83) - (\$2.21 - (\$0.83 + .40))) / (\$2.21 - \$0.83) = 0.29 [+/- 0.01] (29%) [+/- 1%]
Change in contribution divided by the original contribution
Or divide the new contribution margin by the old contribution margin and subtract the result from 1.

COMPANY BACKGROUND: Softstep Stables has developed a lighter horseshoe for thoroughbreds, called the Air Citation. The company is presently experiencing labor difficulties and plans to raise wages to avert a strike. This will increase the Variable Cost per shoe from \$15 to \$23. The shoes presently sell for \$54 each, but due to the competitive environment, Softstep Stables are dropping their price to \$32 each. Their current volume is 800 units. Fixed costs are \$1,500.
QUESTION 1: What is unit (per shoe) contribution BEFORE the price and cost changes?
\$54 - 15 = \$39 [+/- \$1]
Current selling price less \$15
QUESTION 2: What is the total contribution to profit BEFORE the price and cost change?
\$39 * 800 = 31,200 [+/- 936]
Current unit contribution times current volume
QUESTION 3: What will be the new unit contribution after the price and cost change?
\$32 - \$23 = \$9

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