Question 1

a) Sonja is a product manager for a line of consumer cosmetic products and is introducing a new product. She set the retail price at $60 per unit with wholesale margins of 15% and retail margins at 40%. How much will Sonjas company receive per unit under these terms?

Answer Choices: about $33, about $27, about $41, about $31

b) Sonjas manager believes that the retailers will incur additional costs for in-store promotion and sales when the new product is introduced. She suggests that Sonja introduce the new product at the same suggested retail price and change just the retail discount to 55% to reflect those additional costs. Wholesale discounts remain unchanged. How much will Sonjas company receive per unit under these terms?

Answer Choices: about $14, about $20, about $23, about $27

c) If Sonja changes the retail margin from 40% to 55%, how much more per unit will the retailers make?

Answer Choices: about $10, about $9, about $11, about $11.50

d) Bill works in a company that has historically used a markup on cost to determine prices. However, the company is changing over to a new margin-based pricing (pricing based on selling price) structure. In the past his cost-based margins to wholesalers were set at 30%. What will Bills margin percentage to wholesalers be under the structure? Assume of price of $10.

Answer Choices: about 23%, about 17.5%, about 19%, about 21%

e) DaShawn has created a novelty consumer product that he thinks has a lot of potential. He has to decide how to take this new product to market. He is sure that he wants to have the consumer price be $1.99. His variable manufacturing costs are $.50. If he sells the novelty direct to consumers using various online sites like Amazon he will pay a fee of $.65 per unit for website placement, shipping, delivery, and handling and insurance. Based on his research, DaShawn believes that he could sell 50,000 of his novelty products per year using this channel. Assuming his forecast of annual sales is accurate, what is the annual total contribution for DaShawns new novelty using direct distribution?

Answer Choices: about $41k, about $38.5k, about $47k, about $42k

Liung Yi, a close friend and classmate of DaShawn, has discussed an alternative to the idea of selling direct to consumers. Liung argues that the novelty will need upfront advertising and promotion in order to stimulate awareness of the novelty and that DaShawn will miss out on that promotion if he sells direct to consumers. Liung thinks DaShawn should sell the novelty through a specialty chain like Party City, which has 850 stores in the US. Liung found that Party City would buy DaShawns product and sell it through all 850 stores at a retail price of $1.99/unit. Party City would want a margin of 50% and a cooperative advertising allowance of an additional $.20/unit. Party City estimates that, under these terms, the retailer would sell 2 units of DaShawns novelty per week per store. Under this distribution what would DaShawns annual contribution total?

Answer Choices: about $18k, about $19.5k, about $31.5k, about $26k