Prestige Case Study
Accounting Currently there are only two variable costs of the company, but as Anthony RUN (201 1 IPPP)) states when products have different unit contributions and when the product mix changes one approach to the C-V-P analysis is to treat each product separate entity and to construct a profit graph for that entity.
A prestige data service provides a service and so the variable costs are only Power and labor rather then products who would have materials Included. The variable unit cost of both entitles was lactated from have the total variable cost below; 1 .
Power variable cost per unit = $4 total fixed costs is 200 2. Operation wages variable cost per unlit= 24 total fixed costs Is 21 600 The company only has the ability to change variable costs by Increasing or decreasing output, labor or price. Hence we need to calculate how much profit the commercial area Is currently earning to compare each possible alternative.
To calculate Profit / Income the following contribution formula should be used (Anthony ARM 2011 IPPP): Income X -TFH Power and utilities PVC Hours 1′ units sold ETC
Profit for commercial Current situation March 800 28 138 21800 84736 Scenario A April 1000 96. 6 (30% less) 72095 Scenario B 600 179. 4 30% increased 80817 Scenario c 116669. 8 Scenario 110. 4 (reduced 20%) 63428.
8 As demonstrated Scenario C has produced the highest profit margin, which demonstrates potential for increasing profits. However this is dependent on Prestige increasing demand by 30% with only spending (116669. 8- 84736 = ) $31 933. 8). Realistically this is a risk as there is no guarantee that any marketing manager can increase quantity demand, by increasing expenditure on promotions.