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ABC casePresented By:Archit GargGeet SawhneyMohit SharmaSiddharth Kumar
Price 10 10 10
Unit 10 10 10
Sales 100 100 100
V.C 25 50 75Contribution
(S-VC) 75 50 25
F.C 70 45 20
Profit (C-FC) 5 5 5
Profitability (Profit/Cost) % 5.26 5.26 5.26
Basic table
When Price is increased by 10%
a) Volume of sales remain same.b) Volume come down by 10%c) Volume come down by 30%
CASE 1
Price 11 11 11
Unit 10 10 10
Sales 110 110 110
V.C 25 50 75
Contribution 85 60 35
F.C 70 45 20
Profit 15 15 15
Profit Growth 200% 200% 200%Profitability (By
Cost) % 15.79 15.79 15.79
a) Volume remains same
Price 11 11 11
Unit 9 9 9
Sales 99 99 99
V.C 22.5 45 67.5
Contribution 76.5 54 31.5
F.C 70 45 20
Profit 6.5 9 11.5
Profit growth 30% 40% 130%
Profitability % 7.02 10 13.14
b) Volume of Sales ↓ 10%
Price 11 11 11
Unit 7 7 7
Sales 77 77 77
V.C 17.5 35 52.5
Contribution 59.5 42 24.5
F.C 70 45 20
Loss (10.5) (3) 4.5
Profit growth -310% -160% -10%
Profitability % (12) (3.75) 6.20
c) Sales ↓ 30 %
When Price is decreased by 10%.
a) Volume of sales remain same.b) Volume goes up by 10%c) Volume goes up by 30%
CASE 2
Price 9 9 9
Unit 10 10 10
Sales 90 90 90
V.C 25 50 75
Contribution 65 40 15
F.C 70 45 20
Profit (5) (5) (5)
Profit growth (200%) (200%) (200%)Profitability
% (5.26) (5.26) (5.26)
a) Volume remains same.
Price 9 9 9Unit 11 11 11Sales 99 99 99V.C 27.5 55 82.5
Contribution 71.5 44 16.5
F.C 70 45 20Profit 1.5 -1 -3.5Profit
growth -70% -120% -170%Profitability % 1.54 -1 -3.41
b) Volume of Sales ↑ 10%
Price 9 9 9
Unit 13 13 13
Sales 117 117 117
V.C 32.5 65 97.5Contributio
n 84.5 52 19.5
F.C 70 45 20
Profit 14.5 7 (0.5)
Profit growth 190% 40% (110%)Profitability
% 14.15 6.36 (0.43)
c) Volume of Sales ↑ 30%
When the credit period decreases the advantages would be:
The additional 24% adds to our working capital.◦ 2% per month – So the profit will increase by 4% (2
months)
The liquidity in the company increases.
It will result into the proper cash flow. (Inflow and outflow)
CASE 3
1. If price is increased: Profitability goes up when volume is constant or
volume decreases by a smaller portion. Profitability decreases when volume goes down
extensively due to the increase in price.
2. If Price is decreased: Profitability comes down in both the cases, i.e. when
the volume is constant as well as when the volume goes up by a smaller portion.
Profitability increases when the volume increases by a higher margin and variable cost is low.
What is your recommended strategy of pricing for each brand? Formulate Thumb rules of price changes.
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