Using spreadsheet calculation models to support pricing and sales incentives calculations.

Mini-case Information

A sales manager at DPI, a supplier of take-out containers to restaurants, is evaluating different sales strategies towards her Clearwater Grill account. Clearwater Grill is interested in purchasing a new takeout container made by recyclable bottles with a lime green color and including a Clearwater Grill watermark on the top. They already have standard takeout containers, but they are interested in using a little nicer looking and better takeout container because of the increase in take-away sales. Different prices and volumes have been discussed, and the sales manager is now trying to figure out what offer to Clearwater she would benefit most from pushing. The company is using a standard sales incentive scheme that balance profit margin and volume sales (see textbook on p. 278):

Sales Credit = (Target price kicker x (Target price-Actual price) ) x units sold

For 2021, DPIs target price is $19.50 per case of tailormade green watermark dinner boxes made from recyclable plastic bottles. DPIs sales budget for the current year is a volume (no. of cases sold) of 800,000. When adding up all variable and fixed cost for the product, their total budgeted cost amounts to $11,388,000. The Clearwater Grill sales manager are comparing 3 different realistic alternatives

A: Offer a discount of 15% on the target price and have the restaurant guarantee that they would order 20,000 boxes for the first 6 months

B: Offer a discount of 5% on the target price and have the restaurant guarantee that they would order 12,000 boxes

C: Do not offer discount on target price but ask restaurant to only guarantee that they would order 4,000 boxes

Questions to answer

1.What total yearly product profitability does DPI expect to make on the product at hand (the green boxes)?

2.What is the kicker amount that DPI uses in its sales incentive calculation?

3.What sales credit can the manager expect from the three different options (A, B, C)?

4.What profit can the company expect to make on the three different options (A, B, C)?

5.How well are sales credits for the three options towards Clearwater Grill aligned with the profitability for the three options?