Week 4 Average selling price, sales mix, fixed and variable costs

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Questions and Answers

Which of the following is considered a fixed cost?

Sales commissions

Raw material costs

Utilities (correct)

Cost of goods sold (COGS)

If the St. Charles KIA dealership doubles its sales volume from 600 cars to 1,200 cars, which cost is most likely to be categorized as a variable cost?

Employee salaries

Advertising expenses (correct)

Insurance premiums

Rent for the dealership

How does the relationship between total costs and sales volume typically change over the long term?

Total costs become less variable over time.

Most costs become variable over longer timeframes. (correct)

Total fixed costs will always increase indefinitely.

Total costs always decrease as sales increase.

Which formula correctly represents the relationship of total costs?

Total Costs = Total Fixed Costs + Total Variable Costs Signup and view all the answers

What factors can lead to a change in fixed costs when sales volume varies significantly?

Major repairs to the facility Signup and view all the answers

What formula is used to calculate the Average Selling Price (ASP) per unit?

ASP = Total Revenue ($) / Total # units sold Signup and view all the answers

Which factor does NOT affect the Average Selling Price for several products?

Amount of advertising spent Signup and view all the answers

In assessing the ASP for one product compared to another, what aspect are marketers analyzing?

Volume of sales of individual products Signup and view all the answers

How is the Weighted Average Selling Price determined?

By considering the number of each product sold at their respective prices Signup and view all the answers

What is the purpose of analyzing Sales Mix in a business?

To understand the contribution of different products to gross margin. Signup and view all the answers

Which model of bike had the highest gross margin per unit sold?

Elite Rider Signup and view all the answers

If Spokes & Gears wants to increase overall profitability, which bike model should they focus on selling more of?

Elite Rider Signup and view all the answers

How can changes in sales mix potentially affect the Average Selling Price (ASP) of bikes?

Decrease the ASP due to a higher proportion of lower-priced models sold. Signup and view all the answers

Fixed costs differ from variable costs in that fixed costs:

Remain constant regardless of production levels. Signup and view all the answers

In the context of the Sales Mix, what would be an effective strategy to maximize gross margin?

Enhance promotional activities for high-gross-margin SKUs. Signup and view all the answers

Which of the following is NOT considered a variable cost?

Rent for warehouse space Signup and view all the answers

What is the total gross margin generated by the Beginner's Luck bike model?

$480,000 Signup and view all the answers

What factor can lead to a decrease in the Total Cost Per Unit as volume increases?

Spreading fixed costs over a larger number of units. Signup and view all the answers

What is the net effect of selling more units of low-gross-margin bikes on the overall sales mix?

It will decrease the overall sales mix ratio of high-gross-margin bikes. Signup and view all the answers

What is indicated by a decrease in average selling price (ASP) but an increase in total gross margin?

Sales shifts toward higher volume low-priced models. Signup and view all the answers

Which of the following statements about Total Costs is correct?

Total Costs equal Total Fixed Costs plus Total Variable Costs. Signup and view all the answers

What happens to the Fixed Cost per Unit as units sold increase?

It decreases. Signup and view all the answers

To improve the sales mix, what promotional tactic is least likely to be effective?

Running advertising campaigns for all bike models equally. Signup and view all the answers

Study Notes

Average Selling Price

Average Selling Price (ASP) per unit is calculated by dividing Total Revenue ($) by Total number of units sold.
ASP per unit is expressed in dollars.
ASP does not always equal the Selling Price due to discounts, different price lists, and price variations.
Marketers use ASP to understand the dollar amount, compare products, analyze trends over time and benchmark against competitors.

Sales Mix

Sales Mix is the proportion of gross margin dollars generated by different SKUs within a product lineup.
Sales Mix is calculated by dividing the Gross Margin dollars of each SKU by the Total Gross Margin dollars and multiplying by 100.
To understand sales mix, it's essential to consider the Gross Margin in $ per unit to identify SKUs with the highest profit potential.

Fixed Costs vs. Variable Costs

Fixed Costs remain constant regardless of the number of units produced or sold.
Variable Costs change directly with the number of units manufactured or sold.
Variable costs are expressed on a per-unit basis.
Total Costs are calculated by adding Total Fixed Costs and Total Variable Costs.

Total Cost Per Unit

Total Cost Per Unit is calculated by dividing Total Cost ($) by Quantity (#).
Total Cost ($) is the sum of Total Fixed Costs and Total Variable Costs.
The Total Cost Per Unit incorporates both Variable and Fixed Costs on a per-unit basis.
As volume increases, Total Cost Per Unit decreases due to the fixed costs being spread over a larger number of units.

Total Cost Per Unit: Alternative Calculation

The Total Cost Per Unit can also be calculated by adding the Variable Cost Per Unit to the Total Fixed Cost divided by Quantity.

How do costs change with volume?

Over shorter timeframes and smaller changes in quantity, fixed costs are more likely to remain constant.
Over longer timeframes and larger changes in quantity, most costs become variable.
This means that understanding the relationship between costs and volume is crucial for long-term profitability.

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Description

Test your knowledge on key concepts in sales analytics. This quiz covers Average Selling Price, Sales Mix, and the differences between Fixed and Variable Costs. Gain insights into how these factors impact pricing strategies and profitability.