Case Study Details

Child's Play Company

Child's Play Company makes a plastic rattle for toddlers. The rattle is generally marketed through exclusive retailers located in upscale shopping malls. In late $2024,$ Diana Suarez, the president of the company, was considering an alternative marketing plan for $2025$ that was presented to her by Bill Duffy, the marketing manager. Based on sales from January through October $2024,$ Diana expected that $2025$ sales would amount to $100,000$ units. Bill's alternative marketing plan is presented below:

$2025$ Marketing Plan: $"$At the present time, we sell the product to retailers for $$11\mathrm{.}00$ per rattle. Retailers generally charge the consumers between $$12$ and $$12\mathrm{.}50.$ If we cut our selling price to retailers to $$10\mathrm{.}00,$ I expect that the product will do much better. The retailers' increased markup will give them the incentive to display our product more prominently and to promote it more vigorously to customers. We should support this strategy by supplying more promotional materials to retailers, which I expect would be an increase of $$1,200$ in Advertising and Promotion costs. Based on the price cut and the increase in advertising and promotion, I expect that we will be able to boost our sales volume by $20$ percent to $120,000$ units in $2025."$

Diana received cost data from the company's CFO, Don Capp. Don expects that the cost data below are also reliable estimates for $2025$ for a production volume up to $150,000$ units. Beyond $150,000$ units, the company would have to rent additional machines $($with a capacity of $50,000$ units each$),$ which would increase fixed manufacturing overhead costs by $$20,000$ per machine.

$\backslash$table$[[$Sales Price $($Current$),$$$11\mathrm{.}00,$per rattle,Units Sold $($Current$),100,000],[$Sales Price $($Proposed$),$$$10\mathrm{.}00,$per rattle,Units Sold $($Proposed$),120,000],[,,,,]]$

$2024$ Cost Data and Estimated $2025$ Cost Data

Manufacturing Costs for rattles $($based on production volume of $100,000$ units$)$:

Part $2$

Child's Play has been approached by the government, which is seeking to buy $75,000$ rattles for its day care centers in $2025.$ The proposed government contract states that the government would pay Child's Play a price of $$7\mathrm{.}50$ per rattle. If Child's Play decides to accept this special order, they would avoid packaging costs for this contract as well as all variable selling and administrative costs. The company's capacity is limited to only $150,000$ units. If they accept the government contract, they will need to increase their capacity by renting an additional machine. Refer to the "Instructions" tab for the company's estimated cost data and additional machine rental cost.

$\backslash$table$[[$# of Rattles Needed by Gov.,,,,$75,000,],[$Sales Price Paid by Gov.,,,$$,7\mathrm{.}50,$per rattle$],[,,,20,,],[$Increase in fixed costs frol,hine,,$$,20,000,$per machi$]]$

Assume that Child's Play does not adopt the proposed Marketing Plan and that the company's production and sales level without the government contract is expected to be $100,000$ rattles for $2025.$

What is the increase or $($decrease$)$ in Net Income that Child's Play would recognize if they accept this special order?

Based on your above analysis, should Child's Play accept or reject the government contract?

Case Study Details

Child's Play Company

Child's Play Company makes a plastic rattle for toddlers. The rattle is generally marketed through exclusive retailers located in upscale shopping malls. In late $2024,$ Diana Suarez, the president of the company, was considering an alternative marketing plan for $2025$ that was presented to her by Bill Duffy, the marketing manager. Based on sales from January through October $2024,$ Diana expected that $2025$ sales would amount to $100,000$ units. Bill's alternative marketing plan is presented below:

$2025$ Marketing Plan: $"$At the present time, we sell the product to retailers for $$11\mathrm{.}00$ per rattle. Retailers generally charge the consumers between $$12$ and $$12\mathrm{.}50.$ If we cut our selling price to retailers to $$10\mathrm{.}00,$ I expect that the product will do much better. The retailers' increased markup will give them the incentive to display our product more prominently and to promote it more vigorously to customers. We should support this strategy by supplying more promotional materials to retailers, which I expect would be an increase of $$1,200$ in Advertising and Promotion costs. Based on the price cut and the increase in advertising and promotion, I expect that we will be able to boost our sales volume by $20$ percent to $120,000$ units in $2025."$

Diana received cost data