Assume you have a brand (X-Bike)that had a brand rating of 71. You also have a brand (A-Bike) in the same category that had a brand rating of 80 (therefore you have the technology and know-how to redesign X-Bike to the level of A-Bike).

The redesign will cost $30,000 and the material costs of the new bike will increase by $90 per bike. Assume no other elements of your cost-of-goods-sold change, so your gross margins per bike change from $690 per bike to $600 per bike. How many X-Bikes do you need to sell to cover the redesign costs?

QUESTION 2

Assume you had a brand, X-Bike, that had gross margins of $690 per bike in Q5. Its brand rating was 71 and it sold 300 units. After a redesign costing $30,000, the gross margins for X-Bike are projected to be $600 per bike, but its brand rating rises to 80. Because your A-Bike, with a brand judgement of 80 in the same segment and similarly priced, had a market demand of 500 last quarter and you estimate the overall market will grow by 50% next quarter, what overall gross margin would you expect for X-Bike (assume all other things, like ad quality, salesforce, etc. are equal)?

QUESTION 3

Assume the results of Question #2 (how much expected gross margin with newly redesigned X-Bike with gross margin contribution of $600 per bike with predicted 50% increase in demand from Q5 to Q6 based on A-Bike design in Q5). What is the predicted increase in total gross margin from Q5 to Q6 for X-Bike with new design?