Question

1. You are the new sales manager at Acme Imports. You have to determine which pricing strategy; skimming or penetration, will result in the greatest profits. You have been given the Product Cost (CAD) $9.30 , Skimming Retail Price (CAD) $31.59, Skimming Sales Forecast (Units)1090, Penetration Retail Price (CAD) $15.60, and the Penetration Sales Forecast (Units) 3160. You need to calculate the margin % for the two strategies, the gross margin dollars for each strategy, and which strategy will provide the greatest gross profit. (Gross profit is profit before SG&A expenses.)

Answer 1

Answer
  

Based on Skimming Price

Skimming sale forecast = 1090 units

Skimming Retail Price = $31.59

Total Sales =$31.59 x 1090 units=$34433.1

Product Cost=$9.30

Per Unit Net Profit= $31.59-$9.30=$22.29

Total Gross Profit = $22.29 x 1090 units=$24296.1

Gross Profit margin =($24296.1/$34433.1) x 100 =70.56%

Based on Penetration Price

Penetration sale forecast = 3160units

Penetration Retail Price = $15.60

Total Sales =$15.60 x 3160 units=$49296

Product Cost=$9.30

Per Unit Net Profit= $15.60-$9.30=$6.30

Total Profit = $6.30 x 3160 units=$19908

Gross Profit margin =($19908/$49296) x 100 =40.38%

Therefore Skimming Price Gross Profit i.e. $24296.1 and Gross Profit margin i.e.70.56%will be greater than Penetration Price Gross Profit i.e.$19908 and Gross Profit margin i.e. 40.38% .

Note :-

1) Skimming Price statergy is the staergy in which Company sets the price high in starting to recover Research and Developement cost For ex. Apple

2) Penetration Price is the price in which companies set price low in start to make there presence in market For ex Oppo/vivo.

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