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A Perfect Wife

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Submitted By WaseemAhmad
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Corbin Inc. has a successful brand with the name Cruz. The market size in which Cruz competes is $4 billion, and Cruz has generated sales of $400 million. It has a contribution margin of 30% and annual fixed costs of $20 million. Corbin Inc. is thinking of introducing a new brand under the name of Zaturn. Zaturn will compete in the same market as Cruz. The annual fixed costs for this brand are expected to be $40 million.
If it is launched, Zaturn will capture 10% of the market. It has a contribution margin of 40%. Half of the sales of Zaturn will be cannibalized from the sales of Cruz. An alternative strategy for Corbin Inc. is to cancel the introduction of Zaturn and instead to spend the $40 million (on an annual basis) to promote Cruz. This action is expected to increase the sales for Cruz by 50%. Both brands (Cruz and Zaturn) sell at the same price.

Where should the company spend the $40 million and why? Show all calculations!
Solution:
Cruz competition= $4 billion
Cruz generated sales=$400 million
Contribution margin=30%
Annual fixed costs=$20 million
Brand expected=$40 million
Zaturn capture=10%
Contribution margin=40%
Zaturn and instead to spend= $40 million
Increase the sales for Cruz=50%
Company spend the $40 million is to cancel the introduction of Zaturn on an annual basis. Answer

Question #2 Listen, elasticity is important,” said the director of the aquarium, “but we borrowed $21.6 million (for 20 years, other fixed costs are $10,000 per month; total fixed costs per month are $100,000) to build the aquarium last year. We need to set a price of $16 to be able to pay our debt since variable costs are four dollars per person, and we use a standard markup of 300% of variable costs (current price is $12). I've already reduced my promotion budget to pay the debt. If last month's attendance is any indication (only 10,000 customers), we

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