Question

Cool Beans is a locally owned coffeeshop that competes with two large coffee chains, PlanetEuro and Frothies. Alicia, the owner, always creates a marketing plan for her business. For the past year, her plan estimated that Cool Beans would sell 207,000 drinks at an average price of $3.24per serving. Her expected average variable cost per serving was $1.43. She had planned several marketing initiatives at a total cost of $36,000. At the end of the year, she totalled 212,000 drinks served out of a total market of 1,700,000. Unexpectedly, her planned net marketing contribution (NMC) was within $20 of her actual NMC, effectively, no variance.

If actual marketing expenditures were the same as planned, what was the actual average unit margin for Cool Beans?

Answer 1

To find the actual average unit margin for Cool Beans, we use the NMC, which remains the same as planned, despite an increase in the quantity of drinks sold. We subtract the actual variable costs from the actual revenue to get the actual NMC. Then, we find the actual average price per serving and subtract the variable cost per serving from it.

Step-by-step explanation:

To calculate the actual average unit margin for Cool Beans, we must first understand the concept of Net Marketing Contribution (NMC), which is calculated by subtracting variable costs and marketing expenditures from the revenue. Alicia expected to sell 207,000 drinks at $3.24 each, so her expected revenue was 207,000 drinks times $3.24 per drink. However, she actually sold 212,000 drinks. The expected NMC is the expected revenue minus the variable costs ($1.43 per serving for 207,000 servings) and marketing costs ($36,000), which would equal to the expected revenue minus $296,010 (variable costs) minus $36,000 (marketing costs).

Given that the actual NMC was effectively the same as the planned NMC with no significant variance, and that actual marketing expenditures were as planned, we can determine the actual revenue. Since the variable cost per serving and marketing costs remained as expected, the increase in sales volume (212,000 drinks served) should be accounted for at the planned variable cost of $1.43 per serving. Therefore, the actual revenue minus actual variable costs and actual marketing costs will give us the NMC.

Lastly, to find the actual average unit margin, we subtract the variable cost per serving from the actual average price per serving. The actual average unit margin represents the profit per unit after variable costs have been accounted for, but before fixed costs and taxes.