Swing vs Steady

Swing vs unfluctuating a)Swing gross gross sales 5000 Price per whole of measurement $10 Variable court per unit $2. 5 Fixed salute $35000 underway network $ 2500 smart Price per extra unit 0 late Contribution border = New Price per unit Variable personify per unit =$8. 5-$2. 5 =$6 New sales unit 40% extra sales= 5000*40%= 2000 extra put on 40% extra gross r chargeue = excess gross sales* New Contribution allowance account =2000*6 =$12000 New Sales unit 20% additional sales= 5000*20%= gee redundant profit 20% additional Sales = supernumerary Sales* New Contribution bound =1000*6 =$6000 Steady Sales 5000 Price per unit $10 Variable wrong 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 = Additional 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 shekels by charging a put down determine for the new market. )Swing ? P =-1. 5 CM= Price- Variable Cost= $10-$2. 5 =$7. 5 % Break-even sales flip= -? P/(CM + ? P) = 1. 5/(7. 5-1. 5) = 25% % Break-even sales change in units =5000*25% =1250 tote up Break-even sales=5000+1250= 6250 Change in Profit for 40% increase in sales= (Sales change in units- Break-even sales change) * New theatrical role Margin =(2000-1250)*6 =750*6 =$ 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 =- $1500 The answers differ from the answers in reveal a because in part a part pricing is used whereas here the price is reduced for the entire product line. The change in the contribution margin for all the products is responsible for the change in profitability. c) Swing is better positioned to take advantage of this luck because with a 40% increase in sales at a price of$ 8. per unit, it incurs additional profits of $4500 whereas Steady incurs losings of $1500. If the companies share the market twain the companies will squander additional sales lower than the break-even sales resulting income lower than their current income. In much(prenominal) a case Steady will resist far more losses. Low variable cost and hence lower contribution margins of Swing posit the company more profitable in coincidence to Steady for the sales of additional units. Since the market cannot be segmented, I would advise Swi ng to reduce its price and enter the market to acquire 40% additional sales.Steady should overlook the new market and continue marketing to the current market without changing its price. d) Break even sales change that would change the profits by the same amount as a lessening in price. Initial Contribution Margin= 10-5. 5=4. 5 Reactive breakeven = ? P/Initial CM =-1. 5/4. 5=- 33. 33% Thus a sales decrease 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 after Swings reduction to $8. 5 would have brought about 60% reduction in Steadys sales. Since 33. 33%