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7115 · 3.1

Marketing and the market — practice questions

Practice and worked examples for 7115 Marketing and the market. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

A hotel chain launches a luxury spa wing. Explain two ways marketing must work with another functional area.

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Operations: Marketing promises 5-star spa experience — operations must recruit qualified therapists, maintain facilities, and manage capacity so advertised slots are available. Failure creates negative reviews and brand damage.

Finance: Marketing campaign costs $2 m — finance must approve budget and ensure pricing covers higher fixed costs. Break-even on spa wing depends on occupancy forecasts from marketing research.

Worked example 2

A company plans to launch a new energy drink, 'Volt'. The marketing department forecasts sales of 200,000 units in the first year at a price of $1.50 per unit. The variable cost per unit is $0.70. The marketing budget requested is $80,000. The company's allocated fixed costs for this product line (excluding marketing) are $50,000. Calculate the expected profit from the first year of sales and advise whether the marketing budget seems justified.

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Step 1: Calculate Total Revenue This is the total income from the forecast sales. Formula: Sales Volume × Price per Unit 200,000 units × 1.50=1.50 = 300,000

Step 2: Calculate Total Contribution First, find the contribution per unit, which is the amount each unit sold contributes towards covering fixed costs and making a profit. Formula: Price per Unit - Variable Cost per Unit 1.50−1.50 - 0.70 = $0.80 per unit Then, calculate total contribution. Formula: Contribution per Unit × Sales Volume $0.80 × 200,000 units = $160,000

Step 3: Calculate Total Fixed Costs This includes all fixed costs, both the marketing budget and other allocated overheads. Formula: Marketing Budget + Other Fixed Costs 80,000+80,000 + 50,000 = 130,000130,000

Step 4: Calculate Expected Profit This is what remains after all costs (fixed and variable) are deducted from revenue. Formula: Total Contribution - Total Fixed Costs 160,000−160,000 - 130,000 = 30,00030,000

Conclusion & Advice: The expected profit for the first year is $30,000. The marketing budget of $80,000 is justified because the project is forecast to be profitable. The marketing expenditure is essential to achieve the sales volume of 200,000 units. This calculation shows the direct link between marketing's forecasts/budget and finance's need to assess profitability before approving expenditure.

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