Sensitivity Analysis and Cost-Volume-Profit
Crosby Inc.
has just developed a new product called The Cruiser. with a variable
manufacturing cost of $32 per unit.
The
marketing vice president has developed three marketing approaches to selling
The Cruiser. Rank the three approaches, highest to lowest, in order of net
contribution margin.
Alternative:
1
Set a selling price of $38 and have
the organization’s sales persons sell The Cruiser at a 12% commission. There
would be no
advertising program. Estimated sales
would be 12,000 units under this plan.
2
Set a selling price of $40 and have
the organization’s sales persons sell The Cruiser at a 10% commission.
Develop a $35,000 multi-media
advertising program.
Estimated sales under plan 2 would
be 14,000 units.
3
Rely on wholesalers to sell The
Cuiser. Crosby would sell The Cruiser to the wholesaler at $34 per unit.
There would be no
advertising program. Estimated sales
would be 16,000 units under this plan.
Rank the
three approaches, highest to lowest, in order of net contribution margin
(show all of your work and use formulas where appropriate in the cells).
If alternative 3 is chosen based on net CM and the actual sales
do not meet expectations by 20% how much should Crosby increase the selling
price to the wholesaler to make $32,000 in CM?
Prove your
answer by showing all of your work.
