a)
To describe: The expenses to explain the difference between 43 percent and 29 percent.
a)
Answer to Problem 1E
Both Gross margins and contribution margins are not same and also both of them caused by the fixed cost.
Explanation of Solution
Given:
Consumer packaged goods scanner checkout counters are 32,000
Panel surveys for the households are 70,000
Gross margin is 43 percent
Contribution margin is 29 percent and inventory turns over 14 times per year.
| QUANTITY SOLD | UNIFORM PRICE | TOTAL REVENUE | MARGINAL REVENUE | VARIABLE COST | UNIT OPERATING PROFIT | CUMULATIVE PROFIT |
| 0 | $50.00 | $0.00 | $0.00 | $28.00 | $0.00 | $0.00 |
| 1 | $48.00 | $48.00 | $48.00 | $28.00 | $20.00 | $20.00 |
| 2 | $46.00 | $92.00 | $44.00 | $28.00 | $16.00 | $36.00 |
| 3 | $45.00 | $135.00 | $43.00 | $28.00 | $15.00 | $51.00 |
| 4 | $44.00 | $176.00 | $41.00 | $28.00 | $13.00 | $64.00 |
| 5 | $42.00 | $210.00 | $34.00 | $28.00 | $6.00 | $70.00 |
| 6 | $40.00 | $240.00 | $30.00 | $28.00 | $2.00 | $72.00 |
| 7 | $38.31 | $268.17 | $28.00 | $28.00 | $0.00 | $72.00 |
| 8 | $36.50 | $292.00 | $24.00 | $28.00 | ($4.00) | $68.00 |
| 9 | $34.50 | $311.00 | $19.00 | $28.00 | ($9.00) | $59.00 |
| 10 | $32.70 | $327.00 | $16.00 | $28.00 | ($12.00) | $47.00 |
| 11 | $30.91 | $340.00 | $13.00 | $28.00 | ($15.00) | $32.00 |
| 12 | $29.17 | $350.00 | $10.00 | $28.00 | ($18.00) | $14.00 |
| 13 | $27.46 | $357.00 | $7.00 | $28.00 | ($21.00) | ($15.00) |
| 14 | $25.79 | $361.00 | $4.00 | $28.00 | ($24.00) | ($39.00) |
| 15 | $24.07 | $361.00 | $0.00 | $28.00 | ($28.00) | ($67.00) |
| 16 | $22.50 | $360.00 | ($1.00) | $28.00 | ($29.00) | ($96.00) |
| 17 | $20.82 | $354.00 | ($4.00) | $28.00 | ($32.00) | ($128.00) |
| 18 | $19.28 | $347.00 | ($7.00) | $28.00 | ($35.00) | ($163.00) |
Explain:
The department store-brand pantyhose sell the gross margin of 43 percent and a contribution margin of 29 percent. There is some difference in the 43 percent(Gross Margin) and 29 percent(Contribution Margin).Gross Margins are not same as the contribution margins. Difference between two has been caused by the fixed cost. Gross Margins are calculated by subtracting the fixed cost and variable costs.
Introduction: Gross margin defined as the company’s net amount of sales revenue minus its cost of goods sold.it is the direct costs associated with the producing the goods to be sells and service to be provide.
b)
To calculate: The percentage change in unit sales is required to increase total contributions if price is cut by 10 percent.
b)
Answer to Problem 1E
0.53 Or 53% change in sale is required to increase the contribution margins.
Explanation of Solution
Given:
Consumer packaged goods scanner checkout counters are 32,000
Panel surveys for the households are 70,000
Gross margin is 43 percent
Contribution margin is 29 percent and inventory turns over 14 times per year.
| QUANTITY SOLD | UNIFORM PRICE | TOTAL REVENUE | MARGINAL REVENUE | VARIABLE COST | UNIT OPERATING PROFIT | CUMULATIVE PROFIT |
| 0 | $50.00 | $0.00 | $0.00 | $28.00 | $0.00 | $0.00 |
| 1 | $48.00 | $48.00 | $48.00 | $28.00 | $20.00 | $20.00 |
| 2 | $46.00 | $92.00 | $44.00 | $28.00 | $16.00 | $36.00 |
| 3 | $45.00 | $135.00 | $43.00 | $28.00 | $15.00 | $51.00 |
| 4 | $44.00 | $176.00 | $41.00 | $28.00 | $13.00 | $64.00 |
| 5 | $42.00 | $210.00 | $34.00 | $28.00 | $6.00 | $70.00 |
| 6 | $40.00 | $240.00 | $30.00 | $28.00 | $2.00 | $72.00 |
| 7 | $38.31 | $268.17 | $28.00 | $28.00 | $0.00 | $72.00 |
| 8 | $36.50 | $292.00 | $24.00 | $28.00 | ($4.00) | $68.00 |
| 9 | $34.50 | $311.00 | $19.00 | $28.00 | ($9.00) | $59.00 |
| 10 | $32.70 | $327.00 | $16.00 | $28.00 | ($12.00) | $47.00 |
| 11 | $30.91 | $340.00 | $13.00 | $28.00 | ($15.00) | $32.00 |
| 12 | $29.17 | $350.00 | $10.00 | $28.00 | ($18.00) | $14.00 |
| 13 | $27.46 | $357.00 | $7.00 | $28.00 | ($21.00) | ($15.00) |
| 14 | $25.79 | $361.00 | $4.00 | $28.00 | ($24.00) | ($39.00) |
| 15 | $24.07 | $361.00 | $0.00 | $28.00 | ($28.00) | ($67.00) |
| 16 | $22.50 | $360.00 | ($1.00) | $28.00 | ($29.00) | ($96.00) |
| 17 | $20.82 | $354.00 | ($4.00) | $28.00 | ($32.00) | ($128.00) |
| 18 | $19.28 | $347.00 | ($7.00) | $28.00 | ($35.00) | ($163.00) |
Explain:
Following is the formula:
Introduction: A Unit sale is truly what the customer buys from us. It is the quantity of product or service. The unit of sale is basically the fundamental building block of our business.
c)
To compare: The store-brand pantyhose with the products in the given the table and also evaluate the Whitman’s sampler sell for a contribution margin 0f 54 percent when pantyhose sell foe 29 percent.
c)
Answer to Problem 1E
Inventory is much less for the Whitman’s candy and leads to the high contribution margin.
Explanation of Solution
Given:
Consumer packaged goods scanner checkout counters are 32,000
Panel surveys for the households are 70,000
Gross margin is 43 percent
Contribution margin is 29 percent and inventory turns over 14 times per year.
| QUANTITY SOLD | UNIFORM PRICE | TOTAL REVENUE | MARGINAL REVENUE | VARIABLE COST | UNIT OPERATING PROFIT | CUMULATIVE PROFIT |
| 0 | $50.00 | $0.00 | $0.00 | $28.00 | $0.00 | $0.00 |
| 1 | $48.00 | $48.00 | $48.00 | $28.00 | $20.00 | $20.00 |
| 2 | $46.00 | $92.00 | $44.00 | $28.00 | $16.00 | $36.00 |
| 3 | $45.00 | $135.00 | $43.00 | $28.00 | $15.00 | $51.00 |
| 4 | $44.00 | $176.00 | $41.00 | $28.00 | $13.00 | $64.00 |
| 5 | $42.00 | $210.00 | $34.00 | $28.00 | $6.00 | $70.00 |
| 6 | $40.00 | $240.00 | $30.00 | $28.00 | $2.00 | $72.00 |
| 7 | $38.31 | $268.17 | $28.00 | $28.00 | $0.00 | $72.00 |
| 8 | $36.50 | $292.00 | $24.00 | $28.00 | ($4.00) | $68.00 |
| 9 | $34.50 | $311.00 | $19.00 | $28.00 | ($9.00) | $59.00 |
| 10 | $32.70 | $327.00 | $16.00 | $28.00 | ($12.00) | $47.00 |
| 11 | $30.91 | $340.00 | $13.00 | $28.00 | ($15.00) | $32.00 |
| 12 | $29.17 | $350.00 | $10.00 | $28.00 | ($18.00) | $14.00 |
| 13 | $27.46 | $357.00 | $7.00 | $28.00 | ($21.00) | ($15.00) |
| 14 | $25.79 | $361.00 | $4.00 | $28.00 | ($24.00) | ($39.00) |
| 15 | $24.07 | $361.00 | $0.00 | $28.00 | ($28.00) | ($67.00) |
| 16 | $22.50 | $360.00 | ($1.00) | $28.00 | ($29.00) | ($96.00) |
| 17 | $20.82 | $354.00 | ($4.00) | $28.00 | ($32.00) | ($128.00) |
| 18 | $19.28 | $347.00 | ($7.00) | $28.00 | ($35.00) | ($163.00) |
Explain:
Whitman’s sampler sell for a contribution margin 0f 54 percent when pantyhose sell foe 29 percent.
Expenditures on capital cost, selling price, overhead cost, and advertisement are higher for Whitman’s candy.
Further, Inventory is much less for the Whitman’s candy and leads to the high contribution margin.
Introduction: Contribution margin referred as selling price minus variable cost, which is measure of the ability of a company to cover variable costs with revenue.
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Chapter 11 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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