EXERCISE # 7

(3 points)

Planet View is considering production of a lighted world globe that the company would price at a markup of 20 percent above full cost. Management estimates that the variable cost of the globe will be $50 per unit and fixed cost per year will be #100,000.

Required:

a. Assuming sales of 1,000 units, what is the full cost of a globe and what is the price with a 20 percent markup?

b. Assume that the quantity demanded at the price calculated in part a is only 500 units. What is the full cost of the globe and what is the price with a 20 percent markup?

c. Is the company likely to sell 500 units at the price calculated in part b?

EXERCISE #8

(4 points)

Roger Electronics has just developed a low-end electronic calendar that it plans on selling via a cable channel marketing program. The cable programs fee for selling the item is 15 percent of revenue. For this fee, the program will sell the calendar over six 10-minute segments in September.

Rogers fixed cost of producing the calendars are $120,000 per production run. The company plans to wait for all orders to come in, and then it will produce exactly the number of units ordered. Production time will be less than three weeks. Variable production costs are $20 per unit. In addition, it will cost approximately $6 per unit to ship the calendars to customers.

Kourtney Bow, a product manager at Roger, is charged with recommending a price for the item. Based on her experience with similar items, focus group responses, and survey information, she estimated the number of units that can be sold at various prices:

Price	Quantity
$69.99	10,000
$59.99	15,000
$49.99	25,000
$39.99	40,000
$29.99	60,000

Required:

a. Calculate expected profit for each price.

b. Which price maximizes company profit?