Find the maximum sales loss

Reference no: EM1345492

The Healthy Spring Water company sells bottled water for offices / homes. The price of the water is $20 per 10 gallon bottle and the company currently sells 2,000 bottles per day.

The company's daily income and costs:
Sales revenue: $ 40,000
Variable cost : $ 16,000
Fixed cost: $ 20,000

1. What is the maximum sales loss (in % and in units) that the firm could tolerate before a 20% price increase would fail to be worthwhile? (No change in Fixed Cost ).

2. Following competition, the firm considers a 10% price cut. At present, the delivery capacity is exhausted. To serve more customers, the company will have to add one or more additional trucks and drivers. Each truck would deliver up to additional 400 bottles daily, at a daily operating costs (wage, fuel, etc) of $500. What is the minimum sales gain (in % and in units) that the firm must obtain to make a 10% price cut worthwhile?

3. If the actual sales gain following the 10% price reduction were 700 bottles daily, what would be the change in net profit resulting from the price change?

4. A competitor with a very similar price is rumored to reduce his price of a bottle by 15%. Please suggest a well based (i.e. calculated) advice to the firm's reaction.

5. If on average, a customer who buys a bottle, buys from the firm 2 boxes of disposable cups, each box costs the firm $3 and priced at $7 - How would your answers to Question 2 above change ? Under such circumstances, can a promotional campaign of a price of $7 a bottle, be profitable?

6. Derivation Question: Derive the expression for Iso-Contribution relative change of sales quantity (assume no change in fixed costs) when there is a relevant change in the Variable Cost per unit (for all units - not just the additional ones). Give a realistic example of such a change.

Reference no: EM1345492

Questions Cloud

Find out velocities of the decay products in the laboratory : A particle of mass M decays into two identical particles each of mass m, where m = 0.4M. Prior to the decay, the particle of mass M has a total energy of 4 Mc2 in the laboratory reference frame. The velocities of decay product are along the directi..

Illustrate what is the profit maximizing quantity : illustrate what is the profit maximizing quantity that should be offered to Group B

What is the ratio of the mans kinetic energy : A circuit is connected in parallel with two capacitor C1=6F and C2=3F with seperate switches S1,S2 and has a voltage of 20V. capacitor C1 is first charged by closing switch S1. switch S1 is then opened , and charged capacitor is connected to the un..

Wbs for crm implementation in ms projects : Find dependency and resource conflicts and level the entire project to the extent that makes sense

Find the maximum sales loss : The Healthy Spring Water corporation sells bottled water for offices or homes. The price of the water is $20 per ten gallon bottle & firm currently sells 2,000 bottles per day.

Determining smallest-last vertex ordering : Determine a smallest-last vertex ordering and plot degree when deleted diagram for given random geometric graphs.

Project management-costing the project : The project schedule you created as a group, find the resources you will use and what conflicts that may create and justify your choices.

Make a report for nyse-euronext and the nasdaq : You have been asked to make a report for a group of stock brokers about NYSE-Euronext and the NASDAQ.

What is the current in the cell throughout that period : A gun shoots bullets that leave the muzzle at 213m/s. If a bullet is to hit a target 160.4m away at the level of the muzzle, the gun must be aimed at a point above target. (Neglect air resistance.)

User Account

All Pages