Q1.

If the company had dropped product 103 as of January 1, 2004, what effect would that action have had on the $158,000 p

Answer 1:
TotaI Revenue of the company calcuIated as below:
Total revenue including 103 21382
Revenue of 103 5202
Total revenue excluding 103 16180

Total Variable costs of 103

Variable costs of 103 In thousands
Direct labor 1341
Compensation Insurance 88
Materials 946
Power 59
supplies 68
Repairs 20
other income -10
Total Variable costs of 103 2512

Total costs excluding 103

Total costs including 103 21224
Total Variable costs of 103 2512
Total costs excluding 103 18712

Net loss after removing 103

Total revenue excluding 103 16180
Total costs excluding 103 18712
Total loss -2532

Note: All the values are in thousands

n have had on the $158,000 profit for the first six months of 2004?
Q2. In January 2005, should the company reduce the price of product 101 from $9.41 to $8.64?

Answer 2:
The change in revenue for the reduction of price of product 101 is shown below:

Unit Price No. of units sold Total Revenue

Revenue with the old price $9.41 $750,000 $7,057,500
Revenue with the new price $8.64 $1,000,000 $8,640,000
Increase in Revenue $1,582,500

There is an increase in revenue of $1582500

The changes in variable costs (materials and suppliers costs increase by 5%) of the product 101 is shown below:

Old Variables costs of 101 New Variable costs of 101

Variables costs
Unit Costs Cost for 750000 units Unit Costs
Direct Labor 2.3282 1746 2.3282
Compensation Insurance 0.1481 111 0.1481
Materials 1.3766 1032 1.3766
Power 0.0403 30 0.0403
Supplies 0.0941 71 0.0941
Repairs 0.0319 24 0.0319
Other Income 0.0184 14 0.0184

Total Variable costs of 101 3028

Change in variable cost

Total Increase in variable costs = 1083000

Total Increase in revenue in case 1582500
of price drop =
Total Increase in profit = Total increase in revenue-Total increase in costs
499500

Company should reduce the price because Contribution margin for 101 is high at $8.64.
 (Amounts are in thousands)
New Variable costs of 101
Cost for 1000000 units
2328
148
1445
40
99
32
18

4111
-1083
Q3. What is Hilton’s most profitable product?

Answer 3:
Product 101 Product 102
Revenue 9279 6900
Variable Costs:
Direct Labor 2321 1619
Compensation Insurance 148 115
Materials 1372 1251
Power 40 66
Supplies 94 126
Repairs 32 40
Other Income 18 14
Total Variable costs 4025 3231
Contribution margin 5254 3669
Total units sold 996859 712102
Contribution margin/unit 5.27 5.15

Note: Data taken from exhibit 4

Hilton most profitable product is product 103 by considering the variable costs and per unit contribution margin.
 (Amounts are in thousands)
Product 103
5202

1341
88
946
59
68
20
-10
2512
2690
501276
5.37

s and per unit contribution margin.

Q4: What appears to have caused the return to profitable operations in the first six months of 2004?

Answer 4:

Sales of the product 102 is noted as 6900 for the first six months of the 2004 which is 70% of the total sales of 2003 (9977). Th
in demand for the product 102 casued profitable operations and aslo Weston changes to marketing and productions based on
monthly statements reduced the costs.