fun shoes is selling all styles and size of shoes at a flat rate of rupees 1000 with a weekly sales volume of 500 it is making a handsome gross margin of 25% on all sale through consumer research is has found that if it drop it price by 10% its sales will go up to 25% should funshoes go ahead with a price drop of 10%? why or why not?
Answers
Given : flat rate of rupees 1000 with a weekly sales volume of 500 is making a handsome gross margin of 25% on all sale
it drop it price by 10% its sales will go up to 25%
To Find : should fun shoes go ahead with a price drop of 10%
Solution:
flat rate of rupees 1000
weekly sales volume of 500
Total l Revenue = 1000 x 500 = 5,00,000
gross margin of 25%
gross margin = (Total Revenue - Cost of Goods)/Total Revenue
=> 25 /100 = ( 5,00,000 - Cost of Goods)/5,00,000
=>1,25,000 = 5,00,000 - Cost of Goods
=> Cost of Goods = 375,000
Cost per Shoes = 3,75,000 / 500 = 750
Gross Profit = 5,00,000 - 3,75,000 = 1,25,000
drop it price by 10%
Price = 1000 - (10/100)1000 = 900
Sales Volume = 500 + (25/100)500 = 625
Total l Revenue = 900 x 625 = 5,62,500
Total Cost of Goods = 750 x 625 = 4,68,750
Gross Profit = 5,62,500 - 4,68,750 = 93,750
Gross profit is reduced from 1,25,000 to 93,750
Hence it is not advisable to go ahead for price drop
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