Appliance Case Model: The product development head of an appliance manufacturer proposes a new product which he projects to be a big hit in the market. B D E F 1 New product data Financial Analysis 2 Selling price in PHP 400 Sales = Selling Price * % Potential in Units 27,040,042 % of sales amt 3 Market Demand in units 104,000 Manufacturing Costs= P4M + P150 per unit 14,140,016 0.52 4 Mfg Variable Cost per unit 150 Marketing Costs= 10% of Sales amount + Advertising Cost 5,204,004 0.19 Mfg Fixed Cost 4,000,000 General & Admin costs = 15% of sales 4,056,006 0.15 6 Marketing Fixed Costs as % sales 0.10 Profit Before Tax 3,640,016 0.13 7 Gen Admin Costs as % sales 0.15 Quantity of Potential sales in units = 104,000 x 0.65) 67,600 8 Past Advertising data 0.00041993 9 (in P1,000) 100-(100* EXP(-B8* A11)) % % of Market Demand 10 Advertising Costs % of Market Demand 100.00 11 250 9.97 90.00 12 500 18.94 80.00 13 1000 34.29 70.00 14 1500 46.74 60.00 15 2000 56.82 50.00 2500 65.00 40.00 3000 71.63 30.00 3500 77.00 % of Market Demand = 100 - (100*EXP(-0.00041993*Ads)) 20.00 4000 81.36 10.00 Ads in thousand pesos 4500 84.89 21 0.00 5000 87.75 O 1000 2000 3000 4000 5000 6000 7000 22 5500 90.07 6000 91.95 Ads in PHP 1,000 24 6500 93.48 Selling price is P400 with an estimated market demand of 104,000 units. From past advertising data, a budget in advertising of P2.5 M means a 65 % market penetration or (104,000 x .65) equal to 67,600 units. Profit before tax is P3.64 M, 13 % of sales amount. Last year's G & A expense of 15 % was adopted and a project manager will be assigned.Discussion: President: For market share, reduce price to P250 with demand at 200,000 units, 8: advertising at P5 M. Production manager: Quantity over 75,000 units will push variable costs from P150 to P200 per unit due to overtime and subcontracting. P500000 in addition to the P4 M needed for new machinery. Finance manager: Secure profit and sell at P500 with market demand at about 40,000 units. Direction: 1. Compute profit at selling prices of P250, P300, P350, P400, P450, 8: P500 with ad cost of P5 M. 2. Repeat the computations for an ad cost of P2.5M. Create a graph of Price vs. Profit. * Which selling price do you recommend, and why? Hint: An additional model showing Market Demand & Selling Price is needed. Equation of a straight line: Y = m'X + b is converted to Market Demand = m "' Selling Price+ b