Question
In: Finance
A company typically sells 100,000 units at $10 per unit. It runs a promotion that discounts...
A company typically sells 100,000 units at $10 per unit. It runs a promotion that discounts each unit by $3 per unit. To promote the discount, the company pays a flat fee of $50,000. The company sells 50,000 additional units in incremental sales.
What is the cost of this promotion?
Should the company proceed with this promotion and discount?
Why or why not?
Solutions
Expert Solution
1. Cost of promotion= (opportunity cost + flat promotional fees)
= (100000*3)+(50000)= 3,50,000
2. company shouldn't be proceeding with this promotion and discount because this will be leading to an incremental benefit for the company worth $00.
Incremental benefit= (total benefit - incremental cost)
= (50,000)*7)-350000)= 0
INCREMENTAL BENEFIT IS NIL.
3. there is no incremental benefit no incremental loss so the company should be undecided but it should rather not accept it because there will be better investment opportunities.
jeff jeffy answered 2 years agoRelated Solutions
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