Mettel Products sells 100,000 flash drives annually to industrial distributors who resell the drives to business customers for $40 each. The distributors margins are 25%. Mettel Products cost of goods sold is $10.00 each. Mettels total variable costs (including selling costs) are $15.00 per drive. What is the gross margin (in percentage) enjoyed by Mettel Products on its drives? [Note: A firms margin on a product is typically calculated as a percentage of the firms selling price.]

We know this to be: 66.7%

Mettel is considering increasing its annual advertising spending from $75,000 to $150,000. How many additional flash drives would it need to sell in a year in order to break-even?

We know this to be: 5000 units

If instead of increasing its advertising spending, Mettel decides to reduce its price by $3 per drive, how many additional units would it need to sell in order to break even? Purely based upon the analysis in questions 2 and 3, what would you recommend to management as the better option increasing advertising or decreasing price? Now, Mettel has developed a new flash drive for household use. The new drives cost of goods sold is $3 each, and its total variable costs are expected to be $7.00 each. If it were to market the new drive, it believes it could sell 40,000 units annually to electronics stores at $13 each. Although Mettel expects the electronics stores would resell the new flash drives primarily to households, 30% of the electronics stores sales (in units) are likely to be to business customers who would stop purchasing Mattel drives from industrial distributors (and purchase them from electronics stores instead). Would you advise Mettel to sell the new flash drives to electronics stores? Why or why not?