Mr. Ted Bates formed the Leisure Life Products Company to manufacture and market a line of wooden hot tubs. After designing and testing a working model, Mr. Bates estimated the following costs for the first year of operation: Costs and Expenses Manufacturing overhead $50,000 Marketing support costs $50,000 Direct manufacturing costs per hot tub $200 Direct distribution cost per hot tub $100 Mr. Bates did not do any product concept testing or pricing research to check out consumer interest in his hot tub or what they would be willing to pay. Rather, based on discussions with a few friends, he estimated that if he set a retail price of $1,000 per tub and only advertised and distributed the product through the Internet, he would sell 250 hot tubs the first year. One friend suggested that a mass market might exist if Mr. Bates lowered his selling price. By doing so he might also discourage competitors from entering the wooden hot tub niche category. He estimated that he could sell 500 tubs a year if he set the retail price at $600 per tub. BATES TUBS P & L STATEMENT FOR 2009 Year 1 Estimate at $1000 per tub Year 1 Estimate at $600 per tub $000 % Sales Rev $000 % Sales Rev Sales Revenue 100.0 100.0 Fixed Costs Variable Costs ?? Expenses Net Profit QUESTION: What is the Year 1 Estimate at $600 per tub in $000 for the Variable Costs? 75 150 300

BATES TUBS P & L STATEMENT FOR 2009

	Year 1 Estimate at $1000 per tub		Year 1 Estimate at $600 per tub
	$000	% Sales Rev	$000	% Sales Rev
Sales Revenue		100.0		100.0
Fixed Costs
Variable Costs			??
Expenses
Net Profit

QUESTION:

What is the Year 1 Estimate at $600 per tub in $000 for the Variable Costs?

		75
		150
		300