Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:
| Case | |||||||||
| 1 | 2 | 3 | 4 | ||||||
| Alpha Division: | |||||||||
| Capacity in units | 58,000 | 284,000 | 106,000 | 191,000 | |||||
| Number of units now being sold to outside customers |
58,000 | 284,000 | 82,000 | 191,000 | |||||
| Selling price per unit to outside customers |
$ | 97 | $ | 45 | $ | 65 | $ | 45 | |
| Variable costs per unit | $ | 60 | $ | 26 | $ | 38 | $ | 32 | |
| Fixed costs per unit (based on capacity) |
$ | 21 | $ | 11 | $ | 23 | $ | 6 | |
| Beta Division: | |||||||||
| Number of units needed annually | 9,100 | 66,000 | 17,000 | 62,000 | |||||
| Purchase price now being paid to an outside supplier |
$ | 90 | $ | 45 | $ | 65 | * | — | |
*Before any purchase discount.
Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.
Required:
1. Refer to case 1 shown above. Alpha Division can avoid $3 per unit in commissions on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?
2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $3 per unit in shipping costs on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be?
d. Assume Alpha Division offers to sell 66,000 units to Beta Division for $44 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?
3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 5% price discount from the outside supplier.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?
d. Assume Beta Division offers to purchase 17,000 units from Alpha Division at $56.75 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?
4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 62,000 units of a different product from the one Alpha Division is producing now. The new product would require $27 per unit in variable costs and would require that Alpha Division cut back production of its present product by 31,000 units annually. What is the lowest acceptable transfer price from Alpha Division’s perspective?
In: Accounting
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:
| Case | |||||||||
| 1 | 2 | 3 | 4 | ||||||
| Alpha Division: | |||||||||
| Capacity in units | 51,000 | 286,000 | 109,000 | 192,000 | |||||
| Number of units now being sold
to outside customers |
51,000 | 286,000 | 85,000 | 192,000 | |||||
| Selling price per unit to
outside customers |
$ | 100 | $ | 42 | $ | 66 | $ | 48 | |
| Variable costs per unit | $ | 63 | $ | 20 | $ | 43 | $ | 32 | |
| Fixed costs per unit (based
on capacity) |
$ | 24 | $ | 8 | $ | 23 | $ | 9 | |
| Beta Division: | |||||||||
| Number of units needed annually | 9,400 | 70,000 | 18,000 | 64,000 | |||||
| Purchase price now being paid
to an outside supplier |
$ | 92 | $ | 41 | $ | 66 | * | — | |
*Before any purchase discount.
Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.
Required:
1. Refer to case 1 shown above. Alpha Division can avoid $5 per unit in commissions on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?
2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $4 per unit in shipping costs on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be?
d. Assume Alpha Division offers to sell 70,000 units to Beta Division for $40 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?
3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 5% price discount from the outside supplier.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?
d. Assume Beta Division offers to purchase 18,000 units from Alpha Division at $57.70 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?
4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 64,000 units of a different product from the one Alpha Division is producing now. The new product would require $27 per unit in variable costs and would require that Alpha Division cut back production of its present product by 32,000 units annually. What is the lowest acceptable transfer price from Alpha Division’s perspective?
In: Accounting
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:
| Case | |||||||||
| 1 | 2 | 3 | 4 | ||||||
| Alpha Division: | |||||||||
| Capacity in units | 51,000 | 312,000 | 105,000 | 198,000 | |||||
| Number of units now being sold to outside customers |
51,000 | 312,000 | 78,000 | 198,000 | |||||
| Selling price per unit to outside customers |
$ | 97 | $ | 45 | $ | 62 | $ | 48 | |
| Variable costs per unit | $ | 62 | $ | 25 | $ | 36 | $ | 31 | |
| Fixed costs per unit (based on capacity) |
$ | 21 | $ | 13 | $ | 19 | $ | 9 | |
| Beta Division: | |||||||||
| Number of units needed annually | 10,900 | 68,000 | 20,000 | 60,000 | |||||
| Purchase price now being paid to an outside supplier |
$ | 88 | $ | 45 | $ | 62 | * | — | |
*Before any purchase discount.
Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.
Required:
1. Refer to case 1 shown above. Alpha Division can avoid $6 per unit in commissions on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?
2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $3 per unit in shipping costs on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be?
d. Assume Alpha Division offers to sell 68,000 units to Beta Division for $44 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?
3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 5% price discount from the outside supplier.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?
d. Assume Beta Division offers to purchase 20,000 units from Alpha Division at $53.90 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?
4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 60,000 units of a different product from the one Alpha Division is producing now. The new product would require $27 per unit in variable costs and would require that Alpha Division cut back production of its present product by 30,000 units annually. What is the lowest acceptable transfer price from Alpha Division’s perspective?
In: Accounting
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:
| Case | |||||||||
| 1 | 2 | 3 | 4 | ||||||
| Alpha Division: | |||||||||
| Capacity in units | 57,000 | 303,000 | 102,000 | 203,000 | |||||
| Number of units now being sold to outside customers |
57,000 | 303,000 | 77,000 | 203,000 | |||||
| Selling price per unit to outside customers |
$ | 98 | $ | 43 | $ | 70 | $ | 45 | |
| Variable costs per unit | $ | 63 | $ | 20 | $ | 47 | $ | 32 | |
| Fixed costs per unit (based on capacity) |
$ | 24 | $ | 10 | $ | 26 | $ | 6 | |
| Beta Division: | |||||||||
| Number of units needed annually | 9,700 | 65,000 | 21,000 | 58,000 | |||||
| Purchase price now being paid to an outside supplier |
$ | 91 | $ | 40 | $ | 70 | * | — | |
*Before any purchase discount.
Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.
Required:
1. Refer to case 1 shown above. Alpha Division can avoid $4 per unit in commissions on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?
2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $6 per unit in shipping costs on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be?
d. Assume Alpha Division offers to sell 65,000 units to Beta Division for $39 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?
3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 5% price discount from the outside supplier.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?
d. Assume Beta Division offers to purchase 21,000 units from Alpha Division at $61.50 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?
4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 58,000 units of a different product from the one Alpha Division is producing now. The new product would require $27 per unit in variable costs and would require that Alpha Division cut back production of its present product by 29,000 units annually. What is the lowest acceptable transfer price from Alpha Division’s perspective?
In: Finance
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:
| Case | |||||||||
| 1 | 2 | 3 | 4 | ||||||
| Alpha Division: | |||||||||
| Capacity in units | 56,000 | 318,000 | 102,000 | 208,000 | |||||
| Number of units now being sold to outside customers |
56,000 | 318,000 | 79,000 | 208,000 | |||||
| Selling price per unit to outside customers |
$ | 96 | $ | 41 | $ | 64 | $ | 46 | |
| Variable costs per unit | $ | 59 | $ | 20 | $ | 40 | $ | 32 | |
| Fixed costs per unit (based on capacity) |
$ | 23 | $ | 10 | $ | 21 | $ | 8 | |
| Beta Division: | |||||||||
| Number of units needed annually | 10,000 | 68,000 | 18,000 | 56,000 | |||||
| Purchase price now being paid to an outside supplier |
$ | 87 | $ | 40 | $ | 64 | * | — | |
*Before any purchase discount.
Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.
Required:
1. Refer to case 1 shown above. Alpha Division can avoid $6 per unit in commissions on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?
2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be?
d. Assume Alpha Division offers to sell 68,000 units to Beta Division for $39 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?
3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 6% price discount from the outside supplier.
a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?
b. What is the highest acceptable transfer price from the perspective of the Beta Division?
c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?
d. Assume Beta Division offers to purchase 18,000 units from Alpha Division at $55.16 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?
4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 56,000 units of a different product from the one Alpha Division is producing now. The new product would require $27 per unit in variable costs and would require that Alpha Division cut back production of its present product by 28,000 units annually. What is the lowest acceptable transfer price from Alpha Division’s perspective?
In: Accounting
The 160th Ohio State Fair in 2013 had an estimated 903,824 visitors during the twelve days of the fair, which was record-breaking attendance. The high attendance led to a record-breaking profit of about $400,000 for the fair. Among the sources of revenue for The Ohio State Fair are the revenues generated from the food vendors. A number of food vendors offer a wide variety of fair foods to attendees, including funnel cakes, gyros, cotton candy, milkshakes, and corn dogs. The Ohio State Fair fee schedule for food vendors for 2014 is as follows: $10 per linear foot for ground service fees (front footage x depth) 10% of concessions (food sales) $40 per 12-day parking permit $290 for 100-amp electrical service $50 per 12-day fair admittance pass (one included with basic rental agreement) Questions Of the fees listed in the schedule, which fees are variable with respect to the number of customers at the booth? Which fees are fixed? Assume that Star Concessions has a food booth that requires 15’ of frontage and is 12’ deep. Star expects to have sales averaging $3,600 per day for each of the 12 days of the fair. It has a total of four employees who will work the fair throughout the entire 12-day period. Star pays for each employee’s fair admission and parking. What is the projected total fee that Star will need to pay to The Ohio State Fair? Assume that variable costs are 40% of sales revenue. This 40% includes the 10% charged by The Ohio State Fair. What total sales revenue is needed for Star Concessions to breakeven? What is the average daily sales revenue needed to breakeven? Using your answers from #2 and #3 above, calculate Star’s margin of safety in dollars and percentage.
In: Accounting
Credit Card Sales Valderi’s Gallery sells quality art work, with prices for individual pieces ranging from $400 to $25,000. Sales are infrequent, typically only three to five pieces per week. The following transactions occurred during the first week of June 2015. Perpetual inventory is used.
On June 1, sold an $800 framed print ($500 cost) to Kerwin Antiques on account, with 2/10, n/30 credit terms.
On June 2, sold three framed etchings totaling $2,400 ($1,500 cost) to Maria Alvado, who used the United Merchants Card to charge the cost of the etchings. Valderi mailed the credit card sales slip to United Merchants the same day. United Merchants will send a check within seven days after deducting a one percent fee.
On June 4, sold a $1,900 oil painting ($1,000 cost) to Shaun Chandler, who paid with a personal check.
On June 5, sold a $2,000 watercolor ($1,500 cost) to Julie and John Malbie, who used their Great American Bank Card to charge the purchase of the painting. Valderi deposited the credit card sales slip the same day and received immediate credit in the company’s checking account. The bank charged a one percent fee.
On June 6, received payment from Kerwin Antiques for its June 1 purchase.
On June 7, received a check from United Merchants for the June 2 sale.
Required
Prepare journal entries to record the Valderi Gallery
transactions.
| General Journal | |||
|---|---|---|---|
| Date | Description | Debit | Credit |
| June 1 | AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| To record credit sales revenue. | |||
| June 1 | AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| To record cost of goods sold. | |||
| June 2 | AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer |
| Credit Card Fee Expense | Answer | Answer | |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| To record credit card sales. | |||
| June 2 | AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| To record cost of goods sold. | |||
| June 4 | AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| To record cash sales. | |||
| June 4 | AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| To record cost of goods sold. | |||
| June 5 | AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer |
| Credit Card Fee Expense | Answer | Answer | |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| To record credit card sales. | |||
| June 5 | AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| To record cost of goods sold. | |||
| June 6 | Cash | Answer | Answer |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| To record collection from Kerwin Antiques. | |||
| June 7 | AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer |
| AnswerAccounts Receivable - Kerwin AntiquesAccounts Receivable - United MerchantsCashCost of Goods SoldCredit Card Fee ExpenseInventorySales DiscountsSales Revenue | Answer | Answer | |
| To record collection from United Merchants. | |||
In: Accounting
A golf club manufacturer claims that golfers can lower their scores by using the manufacturer’s newly designed golf clubs. Eight (8) golfers are randomly selected, and each is asked to give his or her most recent score. The scores for each golfer are shown in the table below:
|
Golfer |
Score (old design) |
Score (new design) |
|
1 |
89 |
83 |
|
2 |
84 |
83 |
|
3 |
96 |
92 |
|
4 |
82 |
84 |
|
5 |
74 |
76 |
|
6 |
92 |
91 |
|
7 |
85 |
80 |
|
8 |
91 |
91 |
Assuming the golf scores are normally distributed, at alpha = 0.10, determine whether there is enough evidence to support the manufacturer’s claim by specifically following and addressing the questions below:
In: Statistics and Probability
A local T-shirt company is running a promotion as follows: For customers that buy less than 5 TShirts, there is no disconut. If a customer buys: between 6 and 10 Tshirts they get 10% discount. between 11 and 20 TShirts they get 20% discount. between 21 and 100 TShirts they get 50% discount. Write a C++ program that prompts the user for a number of TShirts. Assuming that a TShirt costs $10, calculate the appropriate discounts and display the number of TShirts bought, total amount, discount amount, and total amount due. For example, if the user bought 11 TShirts, the program should display the following: Number of TShirts bought: 11 Total amount : $ 110 Discount amount : $ 22 Total amount due : $ 88 If the user enters negative values or a 0 for number ofTshirts display an error message and ask them to run the program again.
In: Computer Science
Netflix experienced some membership turbulence in 2016 as a price increase was phased in for its US subscribers. In May 2014, Netflix announced that the price of its standard subscription service would increase from $8 to $9. However, established customers were allowed to stay at the $7.99 price for two years. In 2015, Netflix increased the standard price to $9.99. As a result of the pricing plan and the deferred price increase, in May, 2016, the standard pricing plan for long time customers of Netflix increased from $7.99 per month to $9.99 per month. Netflix began notifying customers in April that the price increase would become effective in the second quarter.
Netflix was trying to implement price increases more slowly after a 2011 increase led to negative publicity and a customer backlash. In that case, Netflix separated its streaming and DVD services, and charged separately for both services.
However, regardless of the implementation of the price increase, the higher monthly prices seem to have impacted the growth of membership among US subscribers. In the two quarters before the price increase, Netflix added net membership of 1.6 million and 2.2 million members. By contrast, the number of members added in Q2 was only 160,000, and in Q3 only 400,000. The Q2 growth in US subscribers was the lowest since Netflix began reporting those numbers in 2012.
|
US Streaming (millions) |
Q2 2015 |
Q3 2015 |
Q4 2015 |
Q1 2016 |
Q2 2016 |
Q3 2016 |
|
Revenue |
1026 |
1064 |
1106 |
1161 |
1208 |
1304 |
|
Contribution Profit |
340 |
344 |
379 |
413 |
414 |
475 |
|
Contribution Margin |
33.1% |
32.3% |
34.3% |
35.6% |
34.3% |
36.4% |
|
Paid Memberships |
41.1 |
42.1 |
43.4 |
45.7 |
46.0 |
46.5 |
|
Total Memberships |
42.3 |
43.2 |
44.7 |
47.0 |
47.1 |
47.5 |
|
Net Additions |
0.90 |
0.88 |
1.56 |
2.23 |
0.16 |
0.40 |
|
Monthly Revenue per Paid Member |
$ 8.33 |
$ 8.43 |
$ 8.49 |
$ 8.47 |
$ 8.75 |
$ 9.40 |
|
Percentage Chg. Rev |
3.7% |
3.9% |
5.0% |
4.0% |
7.9% |
|
|
Percentage Chg. Memberships |
2.5% |
3.2% |
5.3% |
0.6% |
0.9% |
|
|
Source: Netflix 10Q Q3, 2016 |
||||||
1) In 2016 Netflix allowed its prices to increase for U.S. subscribers. Using the data on monthly revenue per paid member in the quarter before the price increase and at the end of the third quarter in 2016, calculate the percentage change. We will use it as a proxy for the percentage change in price.
2) Determine the average membership growth (net additions) before the price increase.
3) Using the projections in the previous question, assuming the growth rate would have stayed the same, how many subscribers Netflix may have expected to add in the 2nd and 3rd quarters of 2016 if it didn't allow the price to increase? How many subscribers did Netflix actually add in the 2nd and 3rd quarters of 2016? Comparting the two numbers how many subscribers were gained/lost due to price increase? What percentage change does it represent relative to the subscribership level in the quarter before the price change (use Total Memberships)?
4) Using the percentage changes in the price and subsriberships calculated in the previous questions, determine the own price elasticity of demand.
5) What do we expect to happen to Netflix's revenue due to the price increase?
In: Economics