A firm has a gross profit of $60 million and a net marketing contribution of $14 million.The firm has a market share of 6% and a margin per unit of $70.Calculate the marketing and sales expenses of the firm.
A)$46 million
B)$70 million
C)$ 420,000
D)$10,000
E)$14 million

Question

Quizplus · Accepted Answer

First, we need to calculate the total revenue of the firm. Since the market share of the firm is 6%, we can use the formula:
Total Revenue = Gross Profit / Market Share
Total Revenue = $60 million / 6% = $1 billion
Next, we can calculate the total variable costs (which include marketing and sales expenses) using the formula:
Total Variable Costs = Total Revenue - Net Marketing Contribution
Total Variable Costs = $1 billion - $14 million = $986 million
Finally, we can calculate the marketing and sales expenses by subtracting the cost of goods sold (which is the cost of producing and delivering the product) from the total variable costs. Since we know the margin per unit is $70, we can assume that the cost of goods sold per unit is:
$70 + Sales and Distribution Expenses per Unit = Selling Price per Unit
Sales and Distribution Expenses per Unit = Selling Price per Unit - $70 = $70 - $70 = $0
Therefore, the cost of goods sold per unit is $0, and the total cost of goods sold is:
Cost of Goods Sold = Number of Units Sold x Cost of Goods Sold per Unit
Number of Units Sold = Gross Profit / Margin per Unit = $60 million / $70 = 857,143 units
Cost of Goods Sold = 857,143 units x $0 = $0
So, the marketing and sales expenses are:
Marketing and Sales Expenses = Total Variable Costs - Cost of Goods Sold
Marketing and Sales Expenses = $986 million - $0 = $986 million
Therefore, the correct answer is A) $46 million.

A Firm Has a Gross Profit of $60 Million and a Net