Benefits of Managing Discounts
Not what you're looking for?
Saunders company has recently become aware of the large total discounts on its orders and would like to know the impact on profit. The company computed its operating profit as follows:
Net sales after discounts $200,000
Variable costs $ 80,000
Contribution margin $120,000
Fixed costs $ 70,000
Operating profit $ 50,000
(a) Suppose Saunders could reduce its sales discounts to produce a 10% increase in net revenues but no changes in variable or fixed costs. By what percent would operatiing profits increase?
How does this percentage compare to the percentage increase in net sales revenue?
(b) Refer to the original information in this problem. Suppose Saunders salespeople discount sales another 2%, with no change in variable or fixed costs. By what percent would operating profits decrease? How does this percentage compare to the percentage increase in sales discounts?
(c) Consider the ration of operating profit to sales. How does this ratio relate to the percentage change in operating profit, for a given percentage change in the net sales revenue?
Purchase this Solution
Solution Summary
The solution discusses the benefits of managing discounts. How the percentage compares to the percentage increase in net sales revenues are provided.
Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance
This quiz test introductory finance topics.
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.