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Fixed Costs, Existence Cycle

Excerpt from Term Paper:

CVP Analysis

Last time, strategies had been developed intended for the different products, the X5, X6 and X7. The strategies were deduced on cost-volume-profit analysis, the item life circuit and different costs strategies. This kind of report is going to highlight the results of the people strategies, and explain for what reason they happened, based on the underlying theories. The X5 analysis confirmed that elevating the price might deliver reduce sales volume level, but higher overall revenue. The same demonstrated for the X6. With all the X7 there is maybe less data. The elasticity has not been known. But we do know this about the X7: This can be a low-priced good that has not been selling well at $195. Thus, it stands to reason, without even knowing the elasticities, that the X7 will take advantage of a lower value. The techniques are consequently

Year simply by Year Decisions: Pricing RD Allocations

PRODUCT

DECISION

2011

2012

2013

2014

2015

X5

Cost

$285

$280

$280

$280

RD %

33%

0%

0%

0%

0%

Discontinue?

NO

ZERO

NO

NO

YES

X6

Price

$420

$441

$441

$441

$441

RD %

34%

forty percent

40%

forty percent

0%

Discontinue?

NO

SIMPLY NO

NO

SIMPLY NO

NO

X7

Price

$195

$165

$165

$165

$165

RD %

33%

60%

60%

60 per cent

Discontinue?

SIMPLY NO

NO

SIMPLY NO

NO

SIMPLY NO

Report upon Results

Cumulative Profit

2011

$81, 571, 138

2012

$361, 796, 857

2013

$849, 408, 401

2014

$1, 372, 679, 239

2015

$1, 612, 592, 251

The table previously mentioned shows that the business fared better under the new calculations. There are several different answers for this. News and 2013, the X5 and X6 were by growth levels of the support life cycle and were the drivers of profit. The X7 was really losing money during these years – more in that afterwards. But the X5 continued right up until 2014, and it was profitable the entire approach, which is that which was predicted. The cost-volume-profit analysis showed that increasing the purchase price would probably deliver a much higher earnings than before. Whilst a higher price means that slightly fewer units would be distributed, the higher value would make up for that. The result is that by 2014-year, the last one of providing the X5, it would still be profitable. Indeed, that was the case. The item had 93% of saturation, which is a great indicator that a few revenue were left on the table, but the profit of $132, 844, 724 in the 2014-year showed that the business was getting the highest revenue out with this product. The fact that this was one with no RD purchase shows that the item is, based on its qualities and positioning in the market, a compelling proposition for buyers. With low elasticity, the CVP research correctly confirmed that raising the price would increase the income.

This product always been a profit rider. The circumstance takes all of us through the top earning years of this product, for the maturity stage of the support life cycle. Therefore , strong sales are expected, especially if the product is maintained RD assets. The CVP analysis revealed that buyers had a pretty low firmness for this item, and therefore an increase in price might deliver a rise in profits. The buying price of $441 seemed to have exactly this impact. By 2015, the X6 has reached 92% saturation, and had money of $159, 126, 896. It is likely that if we are going in 2016, that this product will probably be cut through the lineup. This means that the behavior regarding this product is actually the same as with all the X5, where increasing the retail price is going to improve the profits, in least to a certain point. You want to increase product sales, but there is a constraint about sales. When we get to 92% vividness, the product is in decline and definitely will not cover fixed costs. So the target was to boost the price, and get all the profit away of this merchandise before the

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