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Submitted By:
     Archit Garg
   Geet Sawhney
   Mohit Sharma
Siddharth Kumar
Statistics
 Variable Cost (VC) = $10 Per Unit


 Selling Price (SP) = $ 20 Per Unit


 Annual Fixed Cost (FC) = $300,000
1. Break Even Point (BEP)
  Contribution, C = SP – VC
             = $20 - $10
             = $10

  PV Ratio = C/S * 100
       = $10/$20 *100
       = 50%
 BEP (Units) = FC/C
       = $300,000/$10
       = 30,000 units

 BEP (Sales) = FC/PV Ratio
         = $300,000/50%
            = $600,000
2. Return on Investment
 Investment - $10,00,000
 Expected Annual Return – 20% of Investment
                    = $200,000

 Let the units sold be X:
      20X - 10X - 300,000 = 200,000
      X = 50,000 units
3. Capacity and Profit
  50% capacity = 50,000 units
  VC = $10 P.U.
  FC/Unit = 300,000/50,000
       = $6
  TC = FC+VC
       = $10+$6
       = $16
a) To earn 20% on cost:
      S.P. = $16+ 20% of 16
              = $19.2

b) To earn 25% on S.P.:
       Let S.P. = X
       X = 16 + 0.25X
       0.75X = 16
       X = $21.33
4. Full Capacity Utilization
 Govt. Order of 50,000 units
        So Here, co. is utilizing full capacity of 100,000 units

Therefore,

FC/Unit = 300,000/100,000 = $3
VC = $10

TC = $13

S.P. = $16

Profit/Unit = $16 - $13 = $3

Total Profit (A) = 50,000 * 3 = $150,000
 Other 50,000 units are sold at $20 per unit


Thus,

Profit per unit = $20 - $13 = $7

Total Profit (B) = $350,000

Total Profit (A+B) = $150,000 + $350,000
               = $500,000.
Implications of Accepting The Order
  The company should accept the order because of the
   following benefits:

  Full Capacity Utilization
  Reduction in Fixed cost
  Increase in Profits
Pricing Lessons
 There should be full capacity utilization which will
 reduce the Fixed Cost which in turn would result into
 increase in profit, So the company can charge a slightly
 lower price in case of bulk order.

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Marketing ramashastri bimm-toaster pricing case

  • 1. Submitted By: Archit Garg Geet Sawhney Mohit Sharma Siddharth Kumar
  • 2. Statistics  Variable Cost (VC) = $10 Per Unit  Selling Price (SP) = $ 20 Per Unit  Annual Fixed Cost (FC) = $300,000
  • 3. 1. Break Even Point (BEP)  Contribution, C = SP – VC = $20 - $10 = $10  PV Ratio = C/S * 100 = $10/$20 *100 = 50%
  • 4.  BEP (Units) = FC/C = $300,000/$10 = 30,000 units  BEP (Sales) = FC/PV Ratio = $300,000/50% = $600,000
  • 5. 2. Return on Investment  Investment - $10,00,000  Expected Annual Return – 20% of Investment = $200,000  Let the units sold be X: 20X - 10X - 300,000 = 200,000 X = 50,000 units
  • 6. 3. Capacity and Profit  50% capacity = 50,000 units  VC = $10 P.U.  FC/Unit = 300,000/50,000 = $6  TC = FC+VC = $10+$6 = $16
  • 7. a) To earn 20% on cost: S.P. = $16+ 20% of 16 = $19.2 b) To earn 25% on S.P.: Let S.P. = X X = 16 + 0.25X 0.75X = 16 X = $21.33
  • 8. 4. Full Capacity Utilization  Govt. Order of 50,000 units So Here, co. is utilizing full capacity of 100,000 units Therefore, FC/Unit = 300,000/100,000 = $3 VC = $10 TC = $13 S.P. = $16 Profit/Unit = $16 - $13 = $3 Total Profit (A) = 50,000 * 3 = $150,000
  • 9.  Other 50,000 units are sold at $20 per unit Thus, Profit per unit = $20 - $13 = $7 Total Profit (B) = $350,000 Total Profit (A+B) = $150,000 + $350,000 = $500,000.
  • 10. Implications of Accepting The Order  The company should accept the order because of the following benefits:  Full Capacity Utilization  Reduction in Fixed cost  Increase in Profits
  • 11. Pricing Lessons  There should be full capacity utilization which will reduce the Fixed Cost which in turn would result into increase in profit, So the company can charge a slightly lower price in case of bulk order.