Question

Scenario 6

Media Wise sells a range of media products in package deals. The products sold within bundles are as follows.  

	TV	Stand	Speaker
Selling Price (£)	400	50	40
Variable Cost (£)	250	30	25

Package A consists of a TV and a stand and is sold for a discounted price of £420. Package B consists of a TV, a stand and two speakers and is sold for a discounted price of £480. Currently packages are sold in a ratio of 2 Package As for every 3 Package Bs and 600 packages are sold each month. Fixed costs are expected to be £82,000 for the month.

Question 6

1. Write a memo to management which considers:
   1. Which is the best package sell and why
   2. Whether this selling package is realistic and why or why not?
   3. How else the profitability of the business could be improved       

Answer 1

Particulars	A	B
No of packages (Units)	240	360
Selling price	420	480
Total sales value (in Pounds)	100,800	172,800
Particulars	A	B
Sales value	100,800	172,800
Less: Variable cost	67,200	118,800
Contribution (in pounds)	33,600	54,000
Total	87,600
Less: Fixed cost	82,000
Profit	5,600

a	The best package sell is B since its contribution is higher than A
b	In my view, this selling price is not realistic since there is a discount of 9.45% which is not usually provided for an electronics wholesale business.
c	The selling price of Package B could be increased as it yields higher contribution.