7a. What are the components of the two types of breakeven formulae demonstrated

Question

7a. What are the components of the two types of breakeven formulae demonstrated in class?   (2pts)

7b. How may marketing managers use breakeven in managing their marketing operations? (3pts)

           7c. Demonstrate how the formulae may be employed when deciding on new marketing strategies   (3pts each below for 15 pts)

7.c.1 price increase / decrease;

7.c.2. introducing a new sales unit;

7.c.3 increasing digital media spending,

7.c.4 targeting a specific return on investment;

7.c.5 capturing a specific market share). Use numeric examples for each of the above and include the number of each type before showing your example.

Explanation / Answer

Answer

7a. Two-component of breakeven formulae are 1. Fixed cost, 2. Variable Cost

Fixed costs remain fixed, or constant, regardless of unit volume.

Variable costs vary in direct proportion to quantity sold or unit volume

7b. Various marketing managers use breakeven in managing their marketing operations in identifying various issues such as

1. Make or Buy decision:- Companies often have the option of making certain components or for purchasing them from outside the concern. Break-even analysis can enable the Managers to decide whether to make or buy.

2. Decision Regarding Addition or Deletion of Product Line:- By the analysis of Fixed and Variable cost we can forecast/identify which product line will generate profits which will not. And by analyzing we can decide to add/delete a product line

3. Plant Expansion Decisions:- The break-even analysis may be adopted to reveal the effect of an actual or proposed change in operating condition.

Other issues which can be addressed by the help of breakeven analysis are :-

1. Safety Margin

2. Target profit

3. Change in price

4. Change In cost

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