Net marketing contribution
Canastar Group sells three lines of prepared foods into a
marketplace where total demand is 240 million cases. Canastar’s market share is
2½ percent; the average selling price per case is $30 and their variable costs
per case are $23. Canastar spends $15 million on marketing and sales expenses.
Other operational expenses add up to $6 million. The lemonade mix and the
corndogs are both positive in terms of net profit before taxes, with lemonade
contributing the greater share. Canastar’s cheese line produces a net negative
profit. Last year, the Group’s internally-produced accounting information
system was voted best in the food industry for its ability to track inventory
and accurately predict cost variations.
If Canastar Group lowered its prices by 10% and spent an
additional $5 million on marketing, causing a boost in market share to 4%, what
would the resulting net marketing contribution be?
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