1. The Miyazaki Balderdash Company has two brands ("A" & "B"). Price and cost data for each are presented below.
"A" "B"
Unit price $3.75 $4.15
Unit variable costs $2.35 $2.25
Unit volume/year 775,000 units 1,250,000 units
Annual Promotional expense $525,000 $775,000
a) Determine the unit contributions and contribution margins for each brand at the unit level.
b) What are the respective brand contributions of "A" and "B" to the Miyazaki Company? If Miyazaki Company wishes to eliminate one of these brands which one would you recommend for retention? Explain your reasoning!
b) It has been proposed that the price of each brand be reduced by 12.5%
What would be the new unit contribution and contribution margin for each brand?
c) Compute the approximate elasticity of demand that would result in no change in total contribution for Brand "A" and Brand "B", respectively, after the implementation of the 12.5% price cuts.
Without any further information which brand would you recommend for a price cut if management is profit oriented? Explain! (In this element of the question ignore the annual promotional expense)