Swing vs Steady

cast off vs Steady a)Swing gross gross revenue 5000 monetary value per unit of measurement $10 uncertain woo per unit $2. 5 Fixed monetary value $35000 Current Profit $ 2500 smart Price per additional unit 0 recent Contribution gross profit boundary line = youthful Price per unit Variable cost per unit =$8. 5-$2. 5 =$6 New gross revenue unit 40% additional gross gross revenue= 5000*40%= 2000 superfluous profit 40% additional Sales = surplus Sales* New Contribution brink =2000*6 =$12000 New Sales unit 20% additional gross sales= 5000*20%= 1000 Additional profit 20% additional Sales = Additional Sales* New Contribution security deposit =1000*6 =$6000 Steady Sales 5000 Price per unit $10 Variable Cost per unit $5. Fixed Cost $35000 Current Profit $ 2500 New Price per additional unit $8. 5 New Contribution Margin = New Price per unit Variable cost per unit =$8. 5-$5. 5 =$3 New Sales unit 40% additional sales= 5000*40%= 2000 Additional profit 40% additional Sales = Add itional Sales* New Contribution Margin =2000*3 =$6000 New Sales unit 20% additional sales= 5000*20%= 1000 Additional profit 20% additional Sales = Additional Sales* New Contribution Margin =1000*3 =$3000 Both the companies should enter the market as they are realizing additional mesh by charging a lower outlay for the new market. )Swing ? P =-1. 5 CM= Price- Variable Cost= $10-$2. 5 =$7. 5 % Break-even sales depart= -? P/(CM + ? P) = 1. 5/(7. 5-1. 5) = 25% % Break-even sales form in units =5000*25% =1250 Total Break-even sales=5000+1250= 6250 Change in Profit for 40% improver in sales= (Sales change in units- Break-even sales change) * New parcel Margin =(2000-1250)*6 =750*6 =$ 4500 Steady ? P =-1. 5 CM= Price- Variable Cost= $10-$5. 5 =$4. 5 New CM= New Price Variable Cost= 8. 5-5. 5= 3 % Break-even sales change= -? P/(CM + ? P) = 1. 5/(4. 5-1. 5) = 50% % Break-even sales change in units =5000*50% =2500Total Break-even sales=5000+2500= 7500 Change in Profit for 40% increase in sales= (Sales change in units- Break-even sales change) * New contribution Margin =(2000-2500)*3 =-750*6 =- $1500 The answers differ from the answers in part a because in part a segmentation pricing is used whereas here the price is cropd for the entire product line. The change in the contribution margin for all the products is responsible for the change in profitability. c) Swing is better positioned to wage advantage of this opportunity because with a 40% increase in sales at a price of$ 8. per unit, it incurs additional profits of $4500 whereas Steady incurs losings of $1500. If the companies share the market both the companies will have additional sales lower than the break-even sales resulting income lower than their current income. In such a case Steady will suffer far more losses. junior-grade variable costs and hence lower contribution margins of Swing brand the company more profitable in comparison to Steady for the sales of additional units. Since the market cannot be segmented, I would advise Swing to reduce its price and enter the market to acquire 40% additional sales.Steady should rule the new market and continue selling to the current market without ever-changing its price. d) Break even sales change that would change the profits by the same amount as a reducing in price. sign Contribution Margin= 10-5. 5=4. 5 Reactive breakeven = ? P/initial CM =-1. 5/4. 5=- 33. 33% Thus a sales reduction of 33. 33% percent at initial price of $10 is equivalent to losses brought about by a price reduction of 1. 5. Steadys management believes that a price of $10 later Swings reduction to $8. 5 would have brought about 60% reduction in Steadys sales. Since 33. 33%