PROBLEM 3 (4 pts) Courtney is a manufacturer’s representative for an industry le

Question

PROBLEM 3 (4 pts) Courtney is a manufacturer’s representative for an industry leading supplier of technology products.  She has determined that last year her largest customer, Abbacus, purchased 10,000 cases of product from her at a price of $300 per case. The gross margin on those sales was 40%.   Abbacus has pressed Courtney hard for a 5% discount (reduction in selling price) throughout the next year.  Courtney has spoken with her manager and learned that she will be expected to generate 5% more in gross margin next year than she did last year.   a. How much Sales Revenue and Gross Margin did Courtney generate from Abbacus last year? b. If Courtney grants a 5% discount off of the $300 list price per case to Abbacus, how much sales revenue and gross margin will be generated if she sells the same number of cases to Abbacus (10,000) as she did last year? Report the difference in revenue and margin that Courtney will lose at the lower price if the discount is granted and unit sales remain the same at 10,000 cases.   c. If Courtney grants the price discount request, how many additional cases of product would she need to sell to: (i) Abbacus at $285 (95% of $300), or (ii) other customers at list price of $300 to make up the lost $150 K Gross Margin earned from Abbacus next year caused by the 5% discount? PROBLEM 3 (4 pts) Courtney is a manufacturer’s representative for an industry leading supplier of technology products.  She has determined that last year her largest customer, Abbacus, purchased 10,000 cases of product from her at a price of $300 per case. The gross margin on those sales was 40%.   Abbacus has pressed Courtney hard for a 5% discount (reduction in selling price) throughout the next year.  Courtney has spoken with her manager and learned that she will be expected to generate 5% more in gross margin next year than she did last year.   a. How much Sales Revenue and Gross Margin did Courtney generate from Abbacus last year? b. If Courtney grants a 5% discount off of the $300 list price per case to Abbacus, how much sales revenue and gross margin will be generated if she sells the same number of cases to Abbacus (10,000) as she did last year? Report the difference in revenue and margin that Courtney will lose at the lower price if the discount is granted and unit sales remain the same at 10,000 cases.   c. If Courtney grants the price discount request, how many additional cases of product would she need to sell to: (i) Abbacus at $285 (95% of $300), or (ii) other customers at list price of $300 to make up the lost $150 K Gross Margin earned from Abbacus next year caused by the 5% discount?

Explanation / Answer

3.

A.

Sales Revenue = 300*10000 = $3000000

Gross margin = 40% of the sales revenue = 40%*3000000

Gross margin =$1200000

B.

If 5% discount is granted,

Sales revenue = (1-5%)*300*10000 = $2850000

Gross margin = 40%*2850000 = $1140000

Difference in sales revenue = 3000000 - 2850000 = $150000

Difference in gross margin = 1200000 – 1140000 = $60000

C.

To recover the loss of gross margin of $150000:

i.

Additional cases required to be sold = 150000/(285*40%) = 1315.78 or 1316 cases

ii.

Additional cases required to be sold = 150000/(300*40%) = 1250 cases

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