Podcast
Questions and Answers
Which of the following is considered a fixed cost?
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?
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?
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?
Which formula correctly represents the relationship of total costs?
What factors can lead to a change in fixed costs when sales volume varies significantly?
What factors can lead to a change in fixed costs when sales volume varies significantly?
What formula is used to calculate the Average Selling Price (ASP) per unit?
What formula is used to calculate the Average Selling Price (ASP) per unit?
Which factor does NOT affect the Average Selling Price for several products?
Which factor does NOT affect the Average Selling Price for several products?
In assessing the ASP for one product compared to another, what aspect are marketers analyzing?
In assessing the ASP for one product compared to another, what aspect are marketers analyzing?
How is the Weighted Average Selling Price determined?
How is the Weighted Average Selling Price determined?
What is the purpose of analyzing Sales Mix in a business?
What is the purpose of analyzing Sales Mix in a business?
Which model of bike had the highest gross margin per unit sold?
Which model of bike had the highest gross margin per unit sold?
If Spokes & Gears wants to increase overall profitability, which bike model should they focus on selling more of?
If Spokes & Gears wants to increase overall profitability, which bike model should they focus on selling more of?
How can changes in sales mix potentially affect the Average Selling Price (ASP) of bikes?
How can changes in sales mix potentially affect the Average Selling Price (ASP) of bikes?
Fixed costs differ from variable costs in that fixed costs:
Fixed costs differ from variable costs in that fixed costs:
In the context of the Sales Mix, what would be an effective strategy to maximize gross margin?
In the context of the Sales Mix, what would be an effective strategy to maximize gross margin?
Which of the following is NOT considered a variable cost?
Which of the following is NOT considered a variable cost?
What is the total gross margin generated by the Beginner's Luck bike model?
What is the total gross margin generated by the Beginner's Luck bike model?
What factor can lead to a decrease in the Total Cost Per Unit as volume increases?
What factor can lead to a decrease in the Total Cost Per Unit as volume increases?
What is the net effect of selling more units of low-gross-margin bikes on the overall sales mix?
What is the net effect of selling more units of low-gross-margin bikes on the overall sales mix?
What is indicated by a decrease in average selling price (ASP) but an increase in total gross margin?
What is indicated by a decrease in average selling price (ASP) but an increase in total gross margin?
Which of the following statements about Total Costs is correct?
Which of the following statements about Total Costs is correct?
What happens to the Fixed Cost per Unit as units sold increase?
What happens to the Fixed Cost per Unit as units sold increase?
To improve the sales mix, what promotional tactic is least likely to be effective?
To improve the sales mix, what promotional tactic is least likely to be effective?
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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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