A supermarket chain operates 300 stores in the southeastern U.S. Because some of the chain’s stores are in affluent areas and others are in working-class neighbourhoods, the chain has decided to use zone pricing. In the affluent areas, the supermarket sells its organic produce for $7.99/lb. In the working-class neighbourhoods, it sells the same organic produce for $5.99/lb. If the supermarket purchases the organic produce for $3.99/lb., what is the per-pound difference in the dollar contribution margin for organic products between the chain’s stores in affluent areas and its stores in working-class areas?

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BlackTom AI · Accepted Answer

First, restating the scenario: the chain uses zone pricing with two price points for the same organic produce, $7.99 per pound in affluent areas and $5.99 per pound in working-class areas. The procurement cost is $3.99 per pound in both zones. The task is to determine the per-pound difference in the dollar contribution margin between the two types of stores.

Option A: 7.00
This would imply a contribution margin difference of $7.00 per pound between zones. Since the cost is the same in both zones, such a large difference cannot arise from the given selling prices minus the same cost. The amount $7.00 does not reflect the actual margins in either zone.

Option B: 4.00
This number matches the contribution margin in the affluent-area stores (7.99 − 3.99 = 4.00). It represents the margin in one zone, not the difference between zones. The question asks for the gap between zones, so this is not the requested difference.

Option C: 6.99
This value is close to the higher selling price but does not relate to margins once the cost is subtracted. It would suggest a price or margin that doesn’t align with the given cost structure (7.99 or 5.99 minus 3.99 does not yield 6.99).

Option D: 7.99
This is exactly the gross selling price in the affluent area, not a margin or a difference between zones. Since the question concerns contribution margins and their difference, 7.99 is not the appropriate metric here.

Option E: 2.00
This number corresponds to the difference between the two contribution margins across zones: in the affluent area, margin is 7.99 − 3.99 = 4.00, while in the working-class area, margin is 5.99 − 3.99 = 2.00; the difference between these two margins is 4.00 − 2.00 = 2.00. Therefore, this value represents the per-pound difference in dollar contribution margin between the two store types.

In summary, the reasoning hinges on calculating each zone’s contribution margin by subtracting the cost from the selling price, then comparing those margins to obtain the difference. The options reflect various interpretations, but only the final one aligns with the concept of a margin difference driven by the zone pricing given the identical cost in both zones.

MGT355H5 F LEC0101 Term Test 2

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