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Financial Analyses
Have you ever wondered why a 16-ounce beverage costs only a little more than the 12- ounce serving? Chances are that the company producing the beverage conducted a financial analysis to determine the cost of the beverage versus what the market would bear as far as price.
An important aspect of looking at alternative courses of action in marketing strategy is performing a financial analysis. Before deciding on a course of action, marketing professionals need to understand the economic consequences of each alternative course of action. The Harvard Case Study, “Note on Marketing Arithmetic and Related Marketing Terms” by Star, Heskett, and Levitt (1974), defines several financial terms and explains formulas you might use to calculate the effects of changes to a marketing program. For example, by using the equations in this article, you could determine how many additional units of a product your company would need to sell to maintain profitability if you increase the var

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MARKETING ARITHMETIC EXERCISE ANSWERSMarketing Arithmetic Exercise AnswersStudent NameCourse TitleInstructor NameUniversity Name1MARKETING ARITHMETIC EXERCISE ANSWERS21.By Increasing the Retail Margin/unit, manufacturers selling price and Wholesale sellingprices decreases. For example, increases Retail Margin/Unite by 10% from 33% to 43% beloweffect can be seen. Whole Selling Price drops from \$0.67 to \$0.57 and manufacturers sellingprice drops to \$0.50 from \$0.59.Margin Structure Factors:Variable Cost Factors:Retail Price:Retail Margin/Unit:Wholesale Margin/Unit:\$1.00Variable Mfg. Cost/Unit:Shipping, etc./Unit:Commissions:\$\$Wholesale Selling Price:\$0.57Manufacturer's Selling Price:\$0.5043%12%0.090.0210%If the retail price remains fixed at \$1.00 and there was an increase in retail and wholesalemargins it would lead to a reduction in the manufacturers selling price. If the company increasesthe retail or wholesale margin it is also increasing the profit available to the company because itis calculated on the retail price. However, with no change in retail price because it remains fixed,the manufacturer would have to reduce its selling price in order to provide the extra benefit to theretailer or wholesaler.Unit contribution for Brand X:Retail Selling Price = \$1.00Retail Margin = 33% (\$0.33)Wholesaler Margin = 12% (\$0.08)Brand X Selling Price = 1.00 (.33 + .12) = .59Variable Costs = (Mnf) .09 + (Ship

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