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.

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$)$:

Per Unit Costs Total Costs Expected Increase

Direct Materials $$0\mathrm{.}90$

Direct Labor $$1\mathrm{.}20$

Variable Manufacturing Overhead $$0\mathrm{.}80$

Packaging $$0\mathrm{.}25$

Fixed Manufacturing Overhead $$180,000$ $$20,000$ per machine $($above $150,000$ units produced$)$

Selling and Administrative Costs for rattles $($based on sales volume of $100,000$ units$)$:

Per Unit Costs Total Costs Expected Increase

Sales Commissions $$0\mathrm{.}75$

Shipping Costs $$0\mathrm{.}50$

Advertising and Promotion $($fixed$)$ $$60,000$ $$1,200$ total

Fixed Selling and Admin Expenses $$75,000$