Question
A manager at a manufacturing company projects/expects the following for the upcoming year: The variable manufacturing costs for the product will amount to $21.50 per
A manager at a manufacturing company projects/expects the following for the upcoming year: The variable manufacturing costs for the product will amount to $21.50 per unit. Its fixed costs should be $50,000/quarter. Wholesaler margins are 43% and retailer margins are 27% (both calculated as a percentage of their respective costs). The manufacturer thinks that he'll be able to make a $100,000 annual profit. (see table below)
1st quarter | 2nd quarter | 3rd quarter | 4th quarter | |
Profits | $20,455 | $18,068 | $29,109 | $32,368 |
a) What will be the minimum retail selling price if the manufacturer expects to sells 10,000 units in the first year?
Imagine that the manager is considering investing in a new advertising campaign that will include a contest. The campaign has the aim to increase demand for the product. The manager expects to invest $2,500 in the campaign (i.e., social media ads) + $1,000 in prizes. The campaign is expected to run during the last quarter of the year - which will significantly increase his fixed cost. But he also expects a 10% increase in profitability in the 4th quarter (compared to the projected amount depicted in table above).
b) Based on a ROI assessment, is the prospective contest campaign a good idea (financially)?
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