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 decrease? $19 * (1 – 20%) = $15. 20 [+/- $0. 46] New Price = Old Price * (1 – Price Reduction %) or New Price = Old Price – Old Price * Price Reduction%

QUESTION 4: If EasyFind’s variable costs are $10 per dozen, what is the contribution per dozen balls at the new price point? $15. 20 – 10 = $5. 20 [+/- $0. 16] New contribution per dozen balls = New price – Variable Costs

QUESTION 5: If EasyFind chooses to reduce its selling price to the new price point, how many units would they have to sell to generate the same monthly revenue? 103,930 / $15. 20 = 6,838 [+/- 205] New Units Necessary to sell = Old total revenues / New Price

QUESTION 6: If variable costs are $10 per dozen, what is the new volume required to earn the same total contribution as before the price decrease? $49,230 / $5. 20 = 9,467 [+/- 284] Divide original total contribution by the new unit contribution

QUESTION 7: What % increase in unit sales is necessary to achieve the same level of total contribution? 9,467 / 5,470 – 1 = 0. 73 [+/- 0. 02] (73%) [+/- 2%] Increase = New Volume Required / Original volume – 1 COMPANY BACKGROUND: A jacket potato vendor charges $5. 72 per spud sold.

The variable cost of each potato served is $0. 91. The stall has a fixed cost of $500 per week.

QUESTION 1: How many potatoes must the stall sell in order to achieve a profit objective of $750 per week? (($500 + 750) / ($5. 72 – $0. 91)) = 260 [+/- 8] Target Volume (units) = (Fixed Cost + Profit Objective) / (Selling Price – Variable Cost).

QUESTION 2: A potato shortage results in an increased variable cost per potatoes of $. 40, but selling prices remained unchanged. How many additional potatoes will the vendor have to sell to still achieve the profit objective of $750 per week? ($500 + 750) / ($5. 72 – ($0. 91 + . 0)) – 260 = 23 [+/- 1] Target Volume (units) = (Fixed Cost + Profit Objective) / (Selling Price – Variable Cost) – original # potatoes needed to reach objective from previous question

QUESTION 3: After the shortage, prices return to previous levels and the owner decide to lower prices to $3. 00 per potato. How many potatoes have to be sold to realize the target profit objective of $750? (750 + $500) / (3 – $0. 91) = 598 [+/- 18] Divide the sum of profit and fixed cost by the new contribution margin per potato.

QUESTION 4: What percentage increase in volume sold does the answer in Q3 represent? (598 – 260) / 260 = 1. 0 [+/- 0. 04] (130%) [+/- 4%] Increase in target volume with new price divided by original target volume. QUESTION 5: What is the percentage decrease in unit contribution resulting from the drop in price to $3. 00? (($5. 72 – $0. 91) – (3 – $0. 91)) / ($5. 72 – $0. 91) = 0. 57 [+/- 0. 02] (57%) [+/- 2%] Take the difference between the original contribution and the new contribution and divide by the original contribution. or Divide the new contribution by the old contribution and subtract from 1 COMPANY BACKGROUND: Kai sells a small magazine full of celebrity gossip to college students for $2. 21 per copy.

Hiring the printing press for one day, the only fixed cost, is $372 an issue. The variable cost of printing each issue is $0. 83 per copy. The printer tells Kai the cost of hiring the press is to increase by $135 per day.

QUESTION 1: Before the increase in the cost of hiring the press, Kai was earning a profit of $500 per issue. How many copies per issue (units) was Kai selling? ($372 + 500) / ($2. 21 – $0. 83) = 632 [+/- 19] Volume (units) = (Fixed Cost + Profit) / (Selling Price – Variable Cost).

QUESTION 2: What total contribution is required to cover the new fixed costs and earn $500 profit per issue? 372 + $135 + 500 = $1,007 [+/- $30] Total contribution needed to cover the old fixed costs + new fixed cost + profit is just the three factors added together.

QUESTION 3: What price increase would be required to cover the increase in cost of hiring the press if unit volume (copies per issue) remain the same? $135 / 632 = $0. 21 [+/- $0. 01] The price increase must be enough to cover the additional fixed cost, so we just need to know what that fixed cost is per copy sold. This equals the additional fixed costs / number of copies sold.

QUESTION 4: Kai decides to add color and keep his price the same. This will increase variable costs by $0. 40 per issue. What will be the new unit volume (copies per issue) required to maintain $500 profits and cover the increased fixed and variable costs? ($372 + $135 + 500) / ($2. 21 – ($0. 83 + . 40)) = 1,028 [+/- 31] Divide the new total fixed costs plus profit by the new contribution margin.

QUESTION 5: Kai decides to keep his price the same and add color, increasing variable costs by $0. 40 per issue. What is the percent increase in unit volume (copies per issue) required to maintain $500 profits and cover the increased fixed and variable costs? 1,028 – 632) / 632 = 0. 63 [+/- 0. 02] (63%) [+/- 2%] The increase in volume divided by the original volume. 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 [+/- $0] New selling price less new variable cost.

QUESTION 4: What will be the new unit volume required to generate the same total contribution as before? 31,200 / $9 = 3,467 [+/- 104] Divide the old total contribution (unit contribution x units sold) by the new per unit contribution.

QUESTION 5: By what percentage must the unit volume increase in order to generate the same total contribution as currently earned? (3,467 / 800) – 1 = 3. 334 [+/- 0. 100] (333. 4%) [+/- 10. 0%] Just take the new unit volume divided by the old unit volume and subtract 1

QUESTION 6: If Softstep wants to earn $500 in profit from sales at the new price and new variable costs level, how many units must they sell? ($1,500 + 500) / $9 = 222 [+/- 7] Target Volume in Units = (Fixed Costs + Profit Objective) / (SP – VC)