1. Basic Questions on the Operating Statement
Ted Mitchell

2. Price P 97 Variable Cost V 21.28 Advertising Ad 340000
Inputs
Price P 97
Variable Cost V
21.28
Advertising Ad
340000
Consumer Promotion Cp
Sales Force Sf
720000
Dealer Promotion Dp
930000
Research
150000
Product Development
600000
Sales Volume
86065 units
Competitors
10 firms
Size of Market Qi
708,213 units

3. Sales Revenue =R = PQ = 97(86065)
8,348,305
CoGS = VQ = 21.28(86065)
1,831,463
Gross profit = G = R-CoGS
6,516,842
Markup =Mp = G/R
78.06%
Total Promotion = T
2,330,000
Promotion to Sales = T/R
27.91%
NMC or Zap
4,186,842
R&D
750,000
Net Profit Z
3,436,842
ROS = Z/R
41.17%
Market Share = Q/Qi
12.5%

4. Speedy Shoe can maintain its current costs and sales volume in the next period but it wants to improve its net profit. It has a goal to increase its ROS by an additional 5% over its current ROS percentage. What price must be charged for Speedy shoe to achieve its targeted return on sales?
The new selling price per unit is ________________.

5. Speedy Shoe can maintain its current costs and sales volume in the next period but it wants to improve its net profit. It has a goal to increase its ROS by an additional 5% over its current ROS percentage. What price must be charged for Speedy shoe to achieve its targeted return on sales?
The new selling price per unit is ________________.

6. What is the current ROS? 41.17%
What is the desired ROS? % + 5% = 46.47%
What is the formula you learned in Mkt 210 for calculating a selling price when you have a target return on sales?
Price = (Average Cost per Unit) / (1-ROS)

7. Price = (Average Cost per Unit) / (1-ROS)
What is the current ROS? 41.17%
What is the desired ROS? % + 5% = 46.47%
What is the formula you learned in Mkt 210 for calculating a selling price when you have a target return on sales?
Price = (Average Cost per Unit) / (1-ROS)

8. What is the current ROS? 41.17%
What is the desired ROS? % + 5% = 46.47%
What is the formula you learned in Mkt210 for calculating a selling price when you have a target return on sales?
Price = (Average Cost per Unit) / (1-ROS)
Price = (Average Cost per Unit) / ( )
Need to know the average cost per unit or BEP?

9. What is the average cost per unit or BEP?
BEP = (Total Cost) / Units Sold
BEP = (R-Z)/Q = 4,911,463/86,065
BEP = $57.07

10. What is the average cost per unit or BEP?
BEP = (Total Cost) / Units Sold
BEP = (R-Z)/Q = 4,911,463/86,065
BEP = $57.07
Solve for Price
Price = (Average Cost per Unit) / (1-ROS)
Price = $57.07 / ( )
Price = $106.02

11. Speedy Shoe can maintain its current costs and sales volume in the next period but it wants to improve its net profit. It has a goal to increase its ROS by an additional 5% over its current ROS percentage. What price must be charged for Speedy shoe to achieve its targeted return on sales?
The new selling price per unit is ________________.
$106.02

12. Two Points
You can NOT just memorize the formula Know where it comes from!
You can N0T just learn the mechanics of the solution. Know why you are doing it!

13. Two Points
This is why we need Mkt316
You can NOT just memorize the formula Know where it comes from!
You can N0T just learn the mechanics of the solution. Know why you are doing it!

14. Why are you doing it? Your Boss wants it. BUT WHY!
Cost based prices are benchmarks
Cost based pricing formula sets the stage for discussions on profitable pricing strategy
ROS is a central measure of the firm’s operating efficiency

15. Where did it come from? Price = (Average Cost per Unit) / (1-ROS)
Price = BEP /(1-ROS)

16. Sales Revenue =R = PQ = 97(86065)
8,348,305
CoGS = VQ = 21.28(86065)
1,831,463
Gross profit = G = R-CoGS
6,516,842
Markup =Mp = G/R
78.06%
Total Promotion = T
2,330,000
Promotion to Sales = T/R
27.91%
NMC or Zap
4,186,842
R&D
750,000
Net Profit Z
3,436,842
Desired ROS = Z/R
46.17%
Market Share = Q/Qi
12.5%

17. Sales Revenue =R = PQ = 97(86065)
8,348,305
CoGS = VQ = 21.28(86065)
1,831,463
Gross profit = G = R-CoGS
6,516,842
Markup =Mp = G/R
78.06%
Total Promotion = T
2,330,000
Promotion to Sales = T/R
27.91%
NMC or Zap
4,186,842
R&D
750,000
Net Profit Z = ROS(R)
3,436,842
Desired ROS = Z/R
46.17%
Market Share = Q/Qi
12.5%

18. Sales Revenue =R = PQ = 97(86065)
8,348,305
CoGS = VQ = 21.28(86065)
1,831,463
Gross profit = G = R-CoGS
6,516,842
Markup =Mp = G/R
78.06%
Total Promotion = T
2,330,000
Promotion to Sales = T/R
27.91%
NMC or Zap
4,186,842
R&D
750,000
Net Profit Z = ROS(R) = ROS(PQ)
3,436,842
Desired ROS = Z/R
46.17%
Market Share = Q/Qi
12.5%

19. Sales Revenue =R = PQ = 97(86065)
8,348,305
CoGS = VQ = 21.28(86065)
1,831,463
Gross profit = G = R-CoGS
6,516,842
Markup =Mp = G/R
78.06%
Total Promotion = T
2,330,000
Promotion to Sales = T/R
27.91%
NMC or Zap
4,186,842
R&D
750,000
Desired Net Profit Z = ROS(R) =
ROS(P)(Q)
Desired ROS = Z/R
46.17%
Market Share = Q/Qi
12.5%

20. Sales Revenue =R = PQ = 97(86065)
8,348,305
CoGS = VQ = 21.28(86065)
1,831,463
Gross profit = G = R-CoGS
6,516,842
Markup =Mp = G/R
78.06%
Total Promotion = T
2,330,000
Promotion to Sales = T/R
27.91%
NMC or Zap
4,186,842
R&D
750,000
Desired Net Profit Z = ROS(R) =
ROS(P)(Q)
Desired ROS = Z/R
46.17%
Market Share = Q/Qi
12.5%
The Total Costs

21. Revenue Sales Revenue =R = PQ = 97(86065) 8,348,305
CoGS = VQ = 21.28(86065)
1,831,463
Gross profit = G = R-CoGS
6,516,842
Markup =Mp = G/R
78.06%
Total Promotion = T
2,330,000
Promotion to Sales = T/R
27.91%
NMC or Zap
4,186,842
R&D
750,000
Desired Net Profit Z = ROS(R) =
ROS(P)(Q)
Desired ROS = Z/R
46.17%
Market Share = Q/Qi
12.5%
The Total Costs

22. Revenue Profit Sales Revenue =R = PQ = 97(86065) 8,348,305
CoGS = VQ = 21.28(86065)
1,831,463
Gross profit = G = R-CoGS
6,516,842
Markup =Mp = G/R
78.06%
Total Promotion = T
2,330,000
Promotion to Sales = T/R
27.91%
NMC or Zap
4,186,842
R&D
750,000
Net Profit Z = ROS(R) =
ROS(P)(Q)
Desired ROS = Z/R
46.17%
Market Share = Q/Qi
12.5%
The Total Costs
Profit

23. Basic Profit Equation Profit = Revenue -Total Cost
Revenue = Total Cost + Profit
Let Revenue = PQ
PQ = Total Cost + Profit
P = (Total Cost)/Q + Profit/Q
We know have to solve for the price, P

24. Basic Profit Equation Profit = Revenue -Total Cost
Revenue = Total Cost + Profit
Let Revenue = PQ
PQ = Total Cost + Profit
P = (Total Cost)/Q + Profit/Q
We know we have to solve for the price, P

25. We know we have to solve for the price, P
P = (Total Cost)/Q + (Desired Profit)/Q
We know
Total Cost/Q = average cost per unit or BEP
Desired Profit = ROS(P)(Q)
Substitute what we know
P = BEP + ROS(P)(Q)/Q
P = BEP + ROS(P)
P - ROS(P) = BEP
P (1-ROS) = BEP
P = BEP/ (1-ROS)

26. We know we have to solve for the price, P
P = (Total Cost)/Q + (Desired Profit)/Q
We know
Total Cost/Q = average cost per unit or BEP
Desired Profit = ROS(P)(Q)
Substitute what we know
P = BEP + ROS(P)(Q)/Q
P = BEP + ROS(P)
P - ROS(P) = BEP
P (1-ROS) = BEP
P = BEP/ (1-ROS)

27. We know we have to solve for the price, P
P = (Total Cost)/Q + (Desired Profit)/Q
We know
Total Cost/Q = average cost per unit or BEP
Desired Profit = ROS(P)(Q)
Substitute what we know
P = BEP + ROS(P)(Q)/Q
P = BEP + ROS(P)
P - ROS(P) = BEP
P (1-ROS) = BEP
P = BEP/ (1-ROS)

28. The pricing equation We memorized in Mkt210
We know have to solve for the price, P
P = (Total Cost)/Q + (Desired Profit)/Q
We know
Total Cost/Q = average cost per unit or BEP
Desired Profit = ROS(P)(Q)
Substitute what we know
P = BEP + ROS(P)(Q)/Q
P = BEP + ROS(P)
P - ROS(P) = BEP
P (1-ROS) = BEP
P = BEP/ (1-ROS)
The pricing equation We memorized in Mkt210

29. Why we are in Mkt 316!
You can NOT just memorize the formula Know where it comes from!
You can N0T just learn the mechanics of the solution. Know why you are doing it!

30. Why we are in Mkt 316
To learn something
in this course
takes a lot of time
and a lot of effort
You can NOT just memorize the formula Know where it comes from!
You can N0T just learn the mechanics of the solution. Know why you are doing it!