Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin of Model A. Based on this analysis, should the firm lower the price of Model A? a. b. Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin for the entire line of tennis rackets. Based on this analysis, should the firm lower the price of Model A?
Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin of Model A. Based on this analysis, should the firm lower the price of Model A? a. b. Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin for the entire line of tennis rackets. Based on this analysis, should the firm lower the price of Model A?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
- Evaluate the impact of the price cut on the (i) total revenue and (ii) contribution margin for the entire line of tennis rackets.
![II. Problem
1. Tennis Products, Inc., produces three models of high-quality tennis rackets. The following table
contains recent information on the sales, costs, and profitability of the three models:
Average
Quantity Sold
(Units/Month)
15,000
5,000
10,000
Variable,
Cost per
Contribution
Current
Price
Total
Margin Per
Unit
Contribution
Model
Revenue
Unit
Margin*
$225,000
85,000
250,000
$560,000
A
$30
$450,000
175,000
450,000
$1,075,000
$15
$15
B
35
18
17
C
45
20
25
Total
* Contribution to fixed costs and profits.
The company is considering lowering the price of Model A to $27 in an effort to inçrease the
number of units sold. Based on the results of price changes that have been instituted in the
past, Tennis Products' chief economist estimates the arc price elasticity of demand to be -2.5.
Furthermore, she estimates the arc cross elasticity of demand between Model A and Model B
to be approximately 0.5 and between Model A and Model C to be approximately 0.2. Variable
costs per unit are not expected to change over the anticipated changes in volume.
Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin
of Model A. Based on this analysis, should the firm lower the price of Model A?
a.
Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin
for the entire line of tennis rackets. Based on this analysis, should the firm lower the
b.
price of Model A?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0ea8e6dd-19ae-42c8-a6da-90708348ba1b%2Fd25e61a4-c016-43db-9b07-51ebcd6f7642%2Fen8n2k6_processed.jpeg&w=3840&q=75)
Transcribed Image Text:II. Problem
1. Tennis Products, Inc., produces three models of high-quality tennis rackets. The following table
contains recent information on the sales, costs, and profitability of the three models:
Average
Quantity Sold
(Units/Month)
15,000
5,000
10,000
Variable,
Cost per
Contribution
Current
Price
Total
Margin Per
Unit
Contribution
Model
Revenue
Unit
Margin*
$225,000
85,000
250,000
$560,000
A
$30
$450,000
175,000
450,000
$1,075,000
$15
$15
B
35
18
17
C
45
20
25
Total
* Contribution to fixed costs and profits.
The company is considering lowering the price of Model A to $27 in an effort to inçrease the
number of units sold. Based on the results of price changes that have been instituted in the
past, Tennis Products' chief economist estimates the arc price elasticity of demand to be -2.5.
Furthermore, she estimates the arc cross elasticity of demand between Model A and Model B
to be approximately 0.5 and between Model A and Model C to be approximately 0.2. Variable
costs per unit are not expected to change over the anticipated changes in volume.
Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin
of Model A. Based on this analysis, should the firm lower the price of Model A?
a.
Evaluate the impact of the price cut on the (i) total revenue, and (ii) contribution margin
for the entire line of tennis rackets. Based on this analysis, should the firm lower the
b.
price of Model A?
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education