# Allegro Answers

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Allegro Answers
1. Using the Simple Sheet, what happens when Allegro cuts advertising and selling effort to 0\$ and raises price to \$500/unit? Comment.

Setting advertising and selling efforts to \$0 while raising the price to \$500 has the following effects on the Simple Sheet:

Projected Industry Sales, Company Market Share, and Sales Volume stay the same
Projected Sales Revenue increases 100% to \$34,839,064
Projected Gross Margin per Unit increases 250% to \$350
Projected Net Contribution Margin increases 567.8%% to \$20,487,345
Projected Net Profit increases 1809.3% to \$20,387,345

According to this information, management would be advised to raise price and cut all advertising and selling efforts.

2. Repeat exercise 1 using the Smart Sheet.

Setting advertising and selling efforts to \$0 while raising the price to \$500 has the following effects on the Smart Sheet:

Projected Industry Sales stay the same
Projected Company Market Share and Sales Volume decrease 100% to 0
Projected Gross Margin per Unit increases 250% to \$350
Projected Gross Contribution Margin decreases 100% to 0
Projected Net Profit decreases 474.6% to \$-4,000,000

According to this information, management is advised to keep price, advertising and selling efforts at the current level, or to re-run the model at different levels.

3. Using the Smart Sheet, what is the profit maximizing level of advertising, selling effort and price? (Hint: Requires Solver) Would you recommend the firm implement this policy? Why or why not?

Using the solver tool, we find that the profit maximizing levels are:

Price = \$275
Advertising = \$1,589,271
Selling = \$1,033,027

We note that:

Projected Market Share decreases by 10% to 2.7%
Projected Net Profit increases by 24% to \$1,324,061

Based on the information, management is advised to implement this policy only if they are looking to increase profits. This is because the increase in profits come at a market share loss of 0.3%. If

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