Final answer:
Bauhaus should set the promotional bundle price at a minimum of €400 to cover the variable costs and the lost revenue due to the anticipated reduction in the sales of individual patio sets and sun umbrellas. This minimum ensures no loss, but the price should ideally be higher for profitability.
Step-by-step explanation:
To determine the appropriate bundle price for the promotion, we must consider not only the cost of each item in the bundle but also the impact on the sales of individual items caused by the promotion. Let's break down the calculations:
Regular price of patio set: €300
Regular price of sun umbrella: €200
Variable cost of patio set: €150
Variable cost of sun umbrella: €50
The promotional bundle will reduce the sales of individual patio sets by 50% and sun umbrellas by 25%. This must be factored into the bundle pricing. If we want to sell 100 bundles, we need to calculate the minimum price at which to sell the bundle to at least cover the variable costs of the patio sets and sun umbrellas that would have been sold individually.
Lost revenue from reduced sales:
- 50% of patio sets = €300 x 0.5 = €150 per patio set not sold
- 25% of sun umbrellas = €200 x 0.25 = €50 per sun umbrella not sold
- Total lost revenue (per bundle): €150 (patio set) + €50 (sun umbrella) = €200
- Total variable costs (per bundle): €150 (patio set) + €50 (sun umbrella) = €200
- Minimum bundle price to cover lost revenue and costs: €200 (lost revenue) + €200 (costs) = €400
To guarantee no loss, Bauhaus should set the bundle price at a minimum of €400. However, to ensure profitability, the price should be higher to cover fixed costs and a profit margin.