Spencer Electronics has just developed a low-end electronic calendar that it plans to sell via a cable channel marketing program. The cable program's fee for selling the item is 20 percent of revenue. For this fee, the program will sell the calendar over six 10-minute segments in September.
Spencer's fixed costs of producing the calendar are $160,000 per production run. The company plans to wait for all orders to come in, then it will produce exactly the number of units ordered. Production time will be less than 3 weeks. Variable production costs are $28 per unit. In addition, it will cost approximately $5 per unit to ship the calendars to customers.
Marsha Andersen, a product manager at Spencer, is charged with recommending a price for the item. Based on her experience with similar items, focus group responses, and survey information, she has estimated the number of units that can be sold at various prices:
Price _________________Quantity
$85 ...........................15,000
$75 ...........................20,000
$65 ...........................30,000
$55 ...........................45,000
$45 ...........................65,000
Required
a. Calculate expected profit for each price.
b. Which price maximizes company profit?