Question
You have conducted some market research for style and size of products you want to use to launch your business. The market research has indicated the sales price ranges listed below will be optimal for your area depending on the style of products you choose to sell.
● Collars
o With pricing at $20 per collar, you can expect to sell 30 collars per day.
o With pricing at $24 per collar, you can expect to sell 25 collars per day.
o With pricing at $28 per collar, you can expect to sell 20 collars per day.
● Leashes
o With pricing at $22 per leash, you can expect to sell 28 leashes per day.
o With pricing at $26 per leash, you can expect to sell 23 leashes per day.
o With pricing at $30 per leash, you can expect to sell 18 leashes per day.
● Harnesses
o With pricing at $25 per harness, you can expect to sell 25 harnesses per day.
o With pricing at $30 per harness, you can expect to sell 22 harnesses per day.
o With pricing at $35 per harness, you can expect to sell 20 harnesses per day.
Additionally, you will need to compare your break-even points for the target profits for each area of your business as listed below to determine your prices.
● Collars
o Break-even
o $300 target profit each month
o $500 target profit each month
● Leashes
o Break-even
o $400 target profit each month
o $600 target profit each month
● Harnesses
o Break-even
o $500 target profit each month
o $650 target profit each month
Remember that all break-even and target points must be in whole units since we cannot sell a partial unit. Round up when calculating partial units to ensure costs are covered. Microsoft Excel tip: Use the ROUNDUP function.
also giver me the sales price for each, variable cost per unit and contribution margin
Answers
GPT-4o mini
To calculate the sales price per unit, variable cost per unit, contribution margin, break-even points, and target profits in whole units, we will need the following formulas:
### Formulas Used:
1. **Contribution Margin (CM)**: \( CM = \text{Selling Price} - \text{Variable Cost} \)
2. **Break-even Point (BEP)**:
- \( BEP = \frac{\text{Fixed Costs}}{CM} \)
3. **Target Profit (TP)**:
- For target profits, \( \text{Units for Target Profit} = \frac{\text{Fixed Costs} + \text{Target Profit}}{CM} \)
### Assumptions:
- We will assume Fixed Costs (to be covered) for break-even analysis. Let’s assume a fixed cost of $500 for simplicity (this can be adjusted based on actual fixed costs).
- For variable costs, we will assume some hypothetical values which can be altered based on your actual cost structure.
### Sample Variable Costs Assumption:
- Assume variable costs are:
- Collars: $10
- Leashes: $12
- Harnesses: $15
### Calculations:
Now we will calculate the Sales Price, Variable Cost, Contribution Margin, and Break-Even Points for each of your product lines.
#### 1. Collars:
| Price | Units Sold/Day | Variable Cost | Contribution Margin | Break-even | Target Profit ($300) | Target Profit ($500) |
|-------|----------------|----------------|---------------------|------------|----------------------|----------------------|
| $20 | 30 | $10 | $10 | 50 | 80 | 100 |
| $24 | 25 | $10 | $14 | 36 | 60 | 72 |
| $28 | 20 | $10 | $18 | 28 | 47 | 56 |
#### 2. Leashes:
| Price | Units Sold/Day | Variable Cost | Contribution Margin | Break-even | Target Profit ($400) | Target Profit ($600) |
|-------|----------------|----------------|---------------------|------------|----------------------|----------------------|
| $22 | 28 | $12 | $10 | 50 | 80 | 100 |
| $26 | 23 | $12 | $14 | 36 | 60 | 72 |
| $30 | 18 | $12 | $18 | 28 | 47 | 56 |
#### 3. Harnesses:
| Price | Units Sold/Day | Variable Cost | Contribution Margin | Break-even | Target Profit ($500) | Target Profit ($650) |
|-------|----------------|----------------|---------------------|------------|----------------------|----------------------|
| $25 | 25 | $15 | $10 | 50 | 80 | 100 |
| $30 | 22 | $15 | $15 | 34 | 69 | 83 |
| $35 | 20 | $15 | $20 | 25 | 63 | 75 |
### Explanation of the Table:
- **Sales Price**: It represents the price at which the product is sold.
- **Units Sold/Day**: Represents the forecasted number of sales each day based on market research.
- **Variable Cost**: The cost incurred to produce or sell one unit of the product.
- **Contribution Margin** is calculated as \( \text{Sales Price} - \text{Variable Cost} \).
- **Break-even** is calculated based on the assumed fixed costs of $500.
- **Target Profit** values are calculated using the break-even point plus the number of units required to achieve the target profit.
The values in the table give you insights into how different pricing strategies can affect your break-even point and profit potential in the market. You can adjust the variable costs based on your actual cost structure to get the accurate break-even and target profit figures.
### Formulas Used:
1. **Contribution Margin (CM)**: \( CM = \text{Selling Price} - \text{Variable Cost} \)
2. **Break-even Point (BEP)**:
- \( BEP = \frac{\text{Fixed Costs}}{CM} \)
3. **Target Profit (TP)**:
- For target profits, \( \text{Units for Target Profit} = \frac{\text{Fixed Costs} + \text{Target Profit}}{CM} \)
### Assumptions:
- We will assume Fixed Costs (to be covered) for break-even analysis. Let’s assume a fixed cost of $500 for simplicity (this can be adjusted based on actual fixed costs).
- For variable costs, we will assume some hypothetical values which can be altered based on your actual cost structure.
### Sample Variable Costs Assumption:
- Assume variable costs are:
- Collars: $10
- Leashes: $12
- Harnesses: $15
### Calculations:
Now we will calculate the Sales Price, Variable Cost, Contribution Margin, and Break-Even Points for each of your product lines.
#### 1. Collars:
| Price | Units Sold/Day | Variable Cost | Contribution Margin | Break-even | Target Profit ($300) | Target Profit ($500) |
|-------|----------------|----------------|---------------------|------------|----------------------|----------------------|
| $20 | 30 | $10 | $10 | 50 | 80 | 100 |
| $24 | 25 | $10 | $14 | 36 | 60 | 72 |
| $28 | 20 | $10 | $18 | 28 | 47 | 56 |
#### 2. Leashes:
| Price | Units Sold/Day | Variable Cost | Contribution Margin | Break-even | Target Profit ($400) | Target Profit ($600) |
|-------|----------------|----------------|---------------------|------------|----------------------|----------------------|
| $22 | 28 | $12 | $10 | 50 | 80 | 100 |
| $26 | 23 | $12 | $14 | 36 | 60 | 72 |
| $30 | 18 | $12 | $18 | 28 | 47 | 56 |
#### 3. Harnesses:
| Price | Units Sold/Day | Variable Cost | Contribution Margin | Break-even | Target Profit ($500) | Target Profit ($650) |
|-------|----------------|----------------|---------------------|------------|----------------------|----------------------|
| $25 | 25 | $15 | $10 | 50 | 80 | 100 |
| $30 | 22 | $15 | $15 | 34 | 69 | 83 |
| $35 | 20 | $15 | $20 | 25 | 63 | 75 |
### Explanation of the Table:
- **Sales Price**: It represents the price at which the product is sold.
- **Units Sold/Day**: Represents the forecasted number of sales each day based on market research.
- **Variable Cost**: The cost incurred to produce or sell one unit of the product.
- **Contribution Margin** is calculated as \( \text{Sales Price} - \text{Variable Cost} \).
- **Break-even** is calculated based on the assumed fixed costs of $500.
- **Target Profit** values are calculated using the break-even point plus the number of units required to achieve the target profit.
The values in the table give you insights into how different pricing strategies can affect your break-even point and profit potential in the market. You can adjust the variable costs based on your actual cost structure to get the accurate break-even and target profit figures.