Determine current gross profit and the break-even market

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Reference no: EM131883480

Altius's Victor VH golf balls currently retail at $40 per dozen. Golf ball sales have been steady at 20 million dozens per year but Altius's market share has decreased over the last few years from 50% to 40%.

As the manager for the golf ball product line, you are considering one of two strategies to recapture share:

(1) decrease the retail price for VH by 5% to $38 for a dozen, or

(2) introduce a new, lower-priced VL ball that will compete at the $25 retail price point. Retailers expect a 20% margin on all golf balls.

a. Complete the table below to determine: (1) the unit profit implications of a $2 decrease in the retail price for VH, assuming the gross margin is currently 70%, and (2) the unit contribution for Victor VL, assuming a gross margin of 60%?

Options	Victor VH (Current)	Victor VH $2 Price Decrease	Victor VL
Retailer Price	$40	$38	$25
Retailer Margin	20%	20%	20%
Victor Price
Victor Variable Cost
Victor Unit Contribution
Victor Gross Margin	70%		60%

b. Complete the table below to determine current gross profit and the break-even market share and unit volume for the $2 retail price decrease option.

You believe that Altius could recapture 5 market share points (to 45%) by introducing the VL ball, but it would result in an additional 5 point drop in share for VH; in other words, VH would capture 35% share and VL would capture 10% share. Complete the table below to determine the gross profit implications.

Unit Volume

Total Market 100%	Victor VH 35%	Victor VH 35%
20,000,000
Unit Contribution			Combined Gross Profit
Unit Contribution

d. You also believe the $2 price decrease on VH balls would recapture 5 market share points (to 45%) without introducing the VL ball. Complete the table below to determine the gross profit implications.

	Total Market	Victor VH
Market Share	100%	45%
Unit Volume	20,000,000
Victor unit contribution
Gross Profit

e. Which option would you choose and why?

Reference no: EM131883480

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