Please help fill out the tables below using the information provided.

Helpful Hint: Yellow Are CASE FACTS Remainder Needs Your Critical Thinking

Whats the Math?	At Everyday Price	At Promotion Price	At Weighted Avg. Price (1)	Some Detail and/or Your Math Equation
RETAILER
Required Margin (%)
Mix (%) Of Total Business
% Discount to Consumer
Sell Price $ to Consumer/ Unit
Gross Profit $/Unit
Cost Goods Sold $/Unit
Mark-Up % Margin %
DISTRIBUTOR/BROKER
Required Mark-Up %
Cost Goods Sold $/Unit
Gross Profit $/Unit
Margin %
MANUFACTURER
Product Cost $/ Unit
Shipping $/Unit
Cost of Goods Sold $/Unit
Gross Profit $/Unit
Margin %
Mark-Up %
Total Fixed Cost/ Overhead $
Total Units Said Theyd Buy
QUESTION 1A Break Even Units
QUESTION 1B Break Even Dollars
Total Project Revenue $
Total Cost of Goods Sold $
Total Gross Profit $
QUESTION 2 Projected Profit (or loss)
QUESTION 3 OPTIONS To Consider?

Weighted Average Example:

Mix = 40% of business at retail price and 60% at promotion price

Assume Retail Price: $10.00; 40% of the total business.

Assume Promotion Price: $7.00; 60% of the total business.

Weighted Average = (40% of $10.00) + (60%of $7.00) = ($4.00 + $4.20) = $8.20

Meaning: On average, the retailer is getting revenue of $8.20per unit sold.

TANSTAAFL - PART ONE Let's Launch A Business Who Are These Companies? Truth in Advertising Big Picture - An Opportunity For TANSTAAF... Company: TANSTAAFL = "There Ain't No Such Thing os A Free Lunch" (REALITY) Manufacturer: WAC = "We Are Cheap" (TRUTH) Broker: AA-YSR = "Ask And - You Shall Receive" (SERVICE) Retailer: WAUA = "We Are Incredible Just Ask" (BET ON IT) UNIVERSITY MBA Students... three friends came up with an idea for an interactive software involving a business educational simulation game for children ages 8-12; the product will be sold in the toy department. In this game, children are exposed to the basics of business. This insight is considered useful, regardless of what profession these children end up pursuing. It includes insight into drivers of business decisions. Their intention would be to run this business while they complete one more year of school; then they will decide if/who will join the business full time. "AA-YSR" Broker Opportunity... a large broker of educational toys named "AA YSR" approached TANSTAAFL and expressed interest in representing TANSTAAFL; they specifically believe that they can obtain distribution in a major retailer named "WAIJA" if the price point is attractive. An Overview What AA-YSR Shared... Requirements TANSTAFFL Has to Work With 3. The Situation.. the TANSTAAL team needs to gather information requested by the distributor and determine if they can justify borrowing money required from relatives and friends. 1. Broker Mark-Up... they require("work on") 10% mark-up to the retailer with all vendors they represent; this is for account management (selling activity). They do not warehouse the product; they do not manage the accounts receivable. 2. Retailer Margin... the mass retailers require a 35% margin on software in the toy department during non- promotional periods ("everyday"); they require a 25% margin during promotional periods. Competitive Retail Price... the distributor knows that a price to the consumer of $9.99 will be required by the retailer Retailer Promotions... this product will be promoted for the winter holidays, they drop the retail price to the consumer by 20%; they require a promotional discount from the vendor to allow for a 25% retailer margin. The distributor estimates that 60% of the annual volume will be sold with during this promotional period. 5. Projected Volume... if TANSTAAFL can meet the requirements above, AA-YSR believes the retailer will commit to first year annual business of 10,000 units -and will be "an exclusive" retailer for one year. A. Cost of Good... they've gotten three quotes from reputable vendors to produce and package the educational software. The lowest cost was from a vendor named "WAC." 4. What TANSTAFFL Believes... Assumptions About the Business Quantity - Units "WAC" Pricing 10,000 $1.00 Note: assume that to get these prices, TANSTAAFL must agree to an exclusive vendor agreement for the first year. B. Family and Friends Loans... they can borrow whatever is needed - BUT-they must be able to pay it all back within a year. (In other words - they must demonstrate that they can at least break even in Year 1.) C. Their Plans... continue school and work on the side to develop further products and prepare for year 2. D. Cost of Year One Operations... they would need to commit to one year with the following minimal expectations for this start-up company: What's Needed Annual Amount Rent... office and warehouse $15,000 Administration... take orders, etc. $15,000 Warehouse Person... fulfill orders $15,000 TANSTAAFL Owners Compensation $0 Professional Fees (Incorporate; Legal; Etc.) $5,000 Total Estimated Expenses (Fixed Costs) $50,000 Estimated Incremental Shipping Cost/Unit $0.50 The three partners are ECSTATIC They have a likely order for 10,000 units. The everyday retail selling price is $9.99 and their cost from the manufacturer for production including packaging and delivered to their warehouse is ONLY $1.00! How can they miss??? That's $3.99 over the selling price to the consumer. They know they're going to be rich! 1) Break-Even... how many units do they need to sell before they make money? 2) Profits... how much money will they make with these assumptions? 3) Options... what would you do? Life Is Great... TANSTAFFL is on Its Way! Questions? TANSTAAFL Let's Launch A Business TANSTAAFL The broker realizes the problem these University students are having. They provide a few Options... options; however, the phone call to the retailer is in five minutes - so they need to decide - The Broker Has Ideas FAST! A Different Retail Price With hindsight, the broker thinks this educational software is so good, they might be able to get two different options approved: a) justify more quantity commitment with a lower retail price or b) justify a higher price with only a less quantity commitment. Option 1: They believe that at an $8.99 retail price to the consumer (which is only 10% less) they can get a quantity commitment of 13,000 units - an increase of 30% above the current annual commitment. The retail margin requirements would not change (35% on the new price at retail and 25% on promotional price when discounted 20% below retail; HOWEVER, after calculating these margins, the retailer would get an additional $1.00 rebate from TANSTAAFL directly to the retailer to offset this change in retail price and lost profitability per unit. Option 2: They also believe that at a retail price only 50 cents higher, they would still get a commitment of 9,500 units; only a 5% reduction versus the 10,000 commitment. Everybody would make more money - because everybody in the value chain will get 5% more! All other margin requirements remain the same. Question? Should They offer the Retailer One of these Options? TANSTAAFL - PART ONE Let's Launch A Business Who Are These Companies? Truth in Advertising Big Picture - An Opportunity For TANSTAAF... Company: TANSTAAFL = "There Ain't No Such Thing os A Free Lunch" (REALITY) Manufacturer: WAC = "We Are Cheap" (TRUTH) Broker: AA-YSR = "Ask And - You Shall Receive" (SERVICE) Retailer: WAUA = "We Are Incredible Just Ask" (BET ON IT) UNIVERSITY MBA Students... three friends came up with an idea for an interactive software involving a business educational simulation game for children ages 8-12; the product will be sold in the toy department. In this game, children are exposed to the basics of business. This insight is considered useful, regardless of what profession these children end up pursuing. It includes insight into drivers of business decisions. Their intention would be to run this business while they complete one more year of school; then they will decide if/who will join the business full time. "AA-YSR" Broker Opportunity... a large broker of educational toys named "AA YSR" approached TANSTAAFL and expressed interest in representing TANSTAAFL; they specifically believe that they can obtain distribution in a major retailer named "WAIJA" if the price point is attractive. An Overview What AA-YSR Shared... Requirements TANSTAFFL Has to Work With 3. The Situation.. the TANSTAAL team needs to gather information requested by the distributor and determine if they can justify borrowing money required from relatives and friends. 1. Broker Mark-Up... they require("work on") 10% mark-up to the retailer with all vendors they represent; this is for account management (selling activity). They do not warehouse the product; they do not manage the accounts receivable. 2. Retailer Margin... the mass retailers require a 35% margin on software in the toy department during non- promotional periods ("everyday"); they require a 25% margin during promotional periods. Competitive Retail Price... the distributor knows that a price to the consumer of $9.99 will be required by the retailer Retailer Promotions... this product will be promoted for the winter holidays, they drop the retail price to the consumer by 20%; they require a promotional discount from the vendor to allow for a 25% retailer margin. The distributor estimates that 60% of the annual volume will be sold with during this promotional period. 5. Projected Volume... if TANSTAAFL can meet the requirements above, AA-YSR believes the retailer will commit to first year annual business of 10,000 units -and will be "an exclusive" retailer for one year. A. Cost of Good... they've gotten three quotes from reputable vendors to produce and package the educational software. The lowest cost was from a vendor named "WAC." 4. What TANSTAFFL Believes... Assumptions About the Business Quantity - Units "WAC" Pricing 10,000 $1.00 Note: assume that to get these prices, TANSTAAFL must agree to an exclusive vendor agreement for the first year. B. Family and Friends Loans... they can borrow whatever is needed - BUT-they must be able to pay it all back within a year. (In other words - they must demonstrate that they can at least break even in Year 1.) C. Their Plans... continue school and work on the side to develop further products and prepare for year 2. D. Cost of Year One Operations... they would need to commit to one year with the following minimal expectations for this start-up company: What's Needed Annual Amount Rent... office and warehouse $15,000 Administration... take orders, etc. $15,000 Warehouse Person... fulfill orders $15,000 TANSTAAFL Owners Compensation $0 Professional Fees (Incorporate; Legal; Etc.) $5,000 Total Estimated Expenses (Fixed Costs) $50,000 Estimated Incremental Shipping Cost/Unit $0.50 The three partners are ECSTATIC They have a likely order for 10,000 units. The everyday retail selling price is $9.99 and their cost from the manufacturer for production including packaging and delivered to their warehouse is ONLY $1.00! How can they miss??? That's $3.99 over the selling price to the consumer. They know they're going to be rich! 1) Break-Even... how many units do they need to sell before they make money? 2) Profits... how much money will they make with these assumptions? 3) Options... what would you do? Life Is Great... TANSTAFFL is on Its Way! Questions? TANSTAAFL Let's Launch A Business TANSTAAFL The broker realizes the problem these University students are having. They provide a few Options... options; however, the phone call to the retailer is in five minutes - so they need to decide - The Broker Has Ideas FAST! A Different Retail Price With hindsight, the broker thinks this educational software is so good, they might be able to get two different options approved: a) justify more quantity commitment with a lower retail price or b) justify a higher price with only a less quantity commitment. Option 1: They believe that at an $8.99 retail price to the consumer (which is only 10% less) they can get a quantity commitment of 13,000 units - an increase of 30% above the current annual commitment. The retail margin requirements would not change (35% on the new price at retail and 25% on promotional price when discounted 20% below retail; HOWEVER, after calculating these margins, the retailer would get an additional $1.00 rebate from TANSTAAFL directly to the retailer to offset this change in retail price and lost profitability per unit. Option 2: They also believe that at a retail price only 50 cents higher, they would still get a commitment of 9,500 units; only a 5% reduction versus the 10,000 commitment. Everybody would make more money - because everybody in the value chain will get 5% more! All other margin requirements remain the same. Question? Should They offer the Retailer One of these Options