Question

Baldwin's product manager is considering lowering the price of the buzz product by $2.50 and wants to know what the impact will be on the product’s contribution margin. assuming no inventory carry costs, what will buzz's contribution margin be if the price is lowered?

Answer 1

Buzz's contribution margin will be 34% if the price is lowered.

Old Price - 2.5 = 32.5
32.5-(14.36MC+7.09LC) = 11.05 
11.05/32.5 =.34
.34 = 34%

Answer 2

The contribution margin of the Buzz product will be changed to 34 percent, given that there is a change in the price lowered by around $2.5 and no inventory costs.

How to calculate contribution margin?

The values obtained for the contribution margin by using the given values in the formula will be as below,

$\rm New\ Price = Old\ Price- 2.5\\\\\rm New\ Price = \ 32.5$

Now calculating the contribution margin,

$\rm Contribution\ Margin = \dfrac{Variable\ Revenue}{New\ Price}\\\\\rm Contribution\ Margin= \dfrac{11.05}{32.5}\\\\\rm Contribution\ Margin= 0.34$

Therefore, the contribution margin of the buzz product will be around 34% if the prices are lowered by $2.5 and the given conditions are met.

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