Mountain Spring manufactures and sells varieties of sports drink (berry, lemon and orange) in bulk to upmarket. Budgeted and actual results for 2019 are as follows:
|Year Ended 30 June 2019|
|net operating profit||$||1,700,000||1,605,500|
|selling price||$ per box||7.00||6.90|
|variable costs||$ per box||(4.50)||(4.40)|
|contribution margin||$ per box||2.50||2.50|
|selling price||$ per box||7.00||6.90|
|variable costs||$ per box||(4.00)||(4.30)|
|contribution margin||$ per box||3.00||2.60|
|selling price||$ per box||8.00||7.90|
|variable costs||$ per box||(5.00)||(4.80)|
|contribution margin||$ per box||3.00||3.10|
|All Products Combined|
|selling price||$ per box||7.44||7.32|
|variable costs||$ per box||(4.54)||(4.53)|
|contribution margin||$ per box||2.90||2.80|
When preparing its budget for 2019, the company assumed that there would be a global market for 22,000,000 boxes of sports drinks and that Mountain Spring’s product would have a 11.409% share of this market.
However, a recent debate on sports drinks argue that while traditional sports drinks are designed to provide athletes with the right balance of carbohydrates, fluids and electrolytes during exercise, they do more harm than good, if you’re just quenching a thirst, because sports drinks contain high level of sugar. As a result, during 2019 both Mountain Spring and its competitors were adversely affected by diminishing consumer in sport drink products. The actual total market size was only 20,000,000 boxes.
The Sales director of Mountain Spring recently explained how they attempted to respond to the difficulties which it faced in 2019: “First, we reduced our selling price for all products; this was a modest price reduction in comparison with those of our smaller competitors. Second, as a pilot project, we introduce natural ingredients such as natural sweetener to add value to our lemon sports drink. In doing so, we try to increase consumer confidence in the health of our product. Finally, to promote our new design lemon sports drink, we run several marketing campaigns as demonstrating the benefits of sports drinks, in particular, the health of our lemon sports drink (with all-natural ingredients) to the sport players.
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