Topics: Marketing, Pricing, Variable cost Pages: 8 (2228 words) Published: February 3, 2013
Introduction
The following calculations have been done based on the data provided by Sean Bridge Bus Company. It must be noted that the analysis Calculations
Route A
Sales (Daily) = (3.10 x 13 x 10) + (1.40 x 5 x 10) = £473
Sales (Yearly) = £ 147576
Variable Cost = £ 107452
Fixed Cost = (60000 + 666 + 6240) = £ 66906
Costing Equation
Sales = Variable Cost + Fixed Cost + Profit
147576 = 107452 + 66906 + Profit
Profit = (26783.8)
Contribution = Variable Cost + Profit
Contribution = 107452 + (-26783.8) = 80669
Contribution per day = 258.5

Route B
Sales (Daily) = (6 x 9 x 10) + (3 x 8 x 10) = £780
Sales (Yearly) = £ 243360
Variable Cost = £ 92102.4
Fixed Cost = (60000 + 666 + 6240) = £ 66906
Costing Equation
Sales = Variable Cost + Fixed Cost + Profit
243360 = 92102.4 + 66906 + Profit
Profit = 84351.6
Contribution = Variable Cost + Profit
Contribution = 92102 + 84351.6 = 176453.6
Contribution per day = 565
Route C
Sales (Daily) = (4.5 x 15 x 10) + (2.25 x 5 x 10) = £675
Sales (Yearly) = £ 245700
Variable Cost = £ 112569.6
Fixed Cost = (60000 + 666 + 6240) = £ 66906
Costing Equation
Sales = Variable Cost + Fixed Cost + Profit
245700 = 112569.6 + 66906 + Profit
Profit = 66224.4
Contribution = Variable Cost + Profit
Contribution = 112569.6 + 66224.4 = 178793.4
Contribution per day = 573.05

Total Contribution (All Routes) = Contribution on A + Contribution on B + Contribution C Total Contribution = 80669 + 176453.6 + 178793.4 = 435916
Total Profit = Profit on A + Profit on B + Profit on C
Total Profit = (-26783.8) +84351.6 + 66224.4 = 123792.2
Estimated Return = 123792.2 / 636,636 x 100 = 19.47%

Critical Analysis of the Findings
According to research, cited by Greene (2003) profitability is higher when a good market share is acquired. Although the results suggest a return on investment of 19.4% overall, individual analysis shows that the company is running in loss plan on one route by its projected price of their routes. Given that, the argument of Carlotti et al. (2005) the organization must look market leadership. The results suggest that on Route A, the ticket price of 3.10 adults and 1.40 for kids should be increased by at least 20% of breakeven. The price should be amended to ensure that cash flow is feasible to finance operating costs and overheads. This also implies that the benefits generated by commuting buses on other routes would also be affected. According to the case study the bus service is essential to the small towns and cities in the area. In order to gain the company must comply with niche marketing strategy. According to Ansoff (1960), the company seems to be in a leadership position in the market, since there is little or no competition, the implementation of the strategy of niche marketing would be very beneficial to the organization. As per Deborah et al. (2005), to acquire a firm grip on any niche market, fair pricing and good service plays a vital role. The return distance of Route A and Route C suggests about the same distance has to be covered to complete a return trip. Since the distance is almost same still the price vary a lot from being 4.50 on C and 3.10 on A. On the other hand route B which hasn’t got that much demand is priced higher that C and A i.e. 6.00. Taking demand prospective in mind routes C and A has more demand if compared with route B. Even though route B yields the maximum profit but the organization should induce correct pricing strategy in order to yield maximum profit if all the routes are taken collectively. After Revising the price

Route A
Sales (Daily) = (5 x 13 x 10) + (2.25 x 5 x 10) = £762.5
Sales (Yearly) = £ 237900
Variable Cost = £ 107452
Fixed Cost = (60000 + 666 + 6240) = £ 66906
Costing Equation
Sales = Variable Cost + Fixed Cost + Profit
237900 = 107452 + 66906 + Profit
Profit = 63541

Route B
Sales (Daily) = (5 x 9 x 10) + (2.25 x 8 x 10) = £630
Sales (Yearly) = £ 196560
Variable Cost = £...