A retailer with a chain of stores is planning product promotions for a future period. The...

 

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A retailer with a chain of stores is planning product promotions for a future period. The following information relates to a product which is being considered for a four week promotion: Normal weekly sales (i.e. without promotion), 2400 units at £2.80 per unit. Normal contribution margin, 45% of normal selling price. Promotional discount, 20% (i.e. normal selling price reduced by 20% during the promotion). Expected promotion sales multiplier. 2.5 (i.e. weekly sales units expected during the promotion is 2.5 x 2400 = 6000 units). Additional fixed costs incurred to run the promotion (i.e. unaffected by the level of promotional sales) are forecast to be £5400. Unit variable costs would be expected to remain at the same level as normal. Required: (a) Calculate the expected incremental profit/(loss) from the promotion. (b) Calculate the sales units multiplier that would be required during the promotion to break even compared with a no-promotion situation. (c) Describe other factors that should be considered before making a decision regarding the promotion. A retailer with a chain of stores is planning product promotions for a future period. The following information relates to a product which is being considered for a four week promotion: Normal weekly sales (i.e. without promotion), 2400 units at £2.80 per unit. Normal contribution margin, 45% of normal selling price. Promotional discount, 20% (i.e. normal selling price reduced by 20% during the promotion). Expected promotion sales multiplier. 2.5 (i.e. weekly sales units expected during the promotion is 2.5 x 2400 = 6000 units). Additional fixed costs incurred to run the promotion (i.e. unaffected by the level of promotional sales) are forecast to be £5400. Unit variable costs would be expected to remain at the same level as normal. Required: (a) Calculate the expected incremental profit/(loss) from the promotion. (b) Calculate the sales units multiplier that would be required during the promotion to break even compared with a no-promotion situation. (c) Describe other factors that should be considered before making a decision regarding the promotion.

Answer rating: 100% (QA)

Answer a Calculation Of Profit Loss under non promotion Sales 240028 Less Variable Sales 67205... View the full answer