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A Retail Store Sells a Popular Cosmetic Called Rochelle and the Store

question 74

Multiple Choice

A retail store sells a popular cosmetic called Rochelle and the store manager is given $100,000 by the corporate office to improve store performance any way she thinks best. The "base case" information is a price of $30 per bottle, a contribution margin of 0.50, a customer defection rate of 17%, and a repurchase frequency of 3 times a year. If these improvement funds could be used to either (a) increase the contribution margin to 0.58 or (b) reduce the customer defection rate to 15% or (c) increase the repurchase frequency to 4 times per year, what is the best way to spend these improvement funds by answering the next two questions? (Assume all other variables remain at the base case level for each of the three improvement options.) VLC = P*CM*RF*BLC
You may want to use the table below to help organize your computations and answer.
$\begin{array}{|c|c|c|c|c|}\hline \begin{array}{c}\text { Price \& } \\\text { Improvement } \\\text { Option }\end{array} & \begin{array}{c}\text { Contribution } \\\text { Margin }\end{array} & \begin{array}{c}\text { Repurchase } \\\text { Frequency }\end{array} & \text { Defection Rate }&\text { VLV in } \$ \\\hline \$ 30 \text { (base case) } & 0.50 & 3 & 17 \%& \\\hline \$ 30 \text { (option a) } & & & \\\hline \$ 30 \text { (option b) } & & & \\\hline \$ 30 \text { (option c) } & & &\\\hline\end{array}$
-Which of the following is the best way to use the $100,000 in improvement funds?

Definitions:

Vocal Cords

The folds of mucous membrane in the larynx that vibrate to produce sound and speech.

Spasmodic

Relating to or affected by spasms, sudden involuntary muscle contractions that can be painful or uncomfortable.

Posterior Thigh

Refers to the back part of the thigh, encompassing muscles such as the hamstrings.

Biceps Femoris

A muscle of the posterior thigh that is part of the hamstrings, involved in knee flexion and thigh extension.