Question 6

SepatuGeylang Ltd has developed a new children shoe called Kiddo. The company expects to sell 200,000 pairs of this new shoe in the first six months after launch, and wishes to make a profit of $6m during that period. Costs are as follows:

Direct manufacturing cost: $10 per pair

Variable production overhead cost: $4 per pair

Fixed cost: $5.2m per annum Required:

(a) Calculate the required sales price per pair if the company is to achieve the target of $6m profit in the first six months of sales. (5 marks)

(b) Calculate the break-even sales price per pair. (4 marks) (c) The company is considering an alternative of fixing the sales price at $65 per pair and launching the shoe with a substantial advertising campaign over the six-month period, which will cost $3.8m. How many pairs of shoes would the company need to sell to achieve the target profit of $6m? (5 marks) (d) In no more than 60 words, discuss two other possible ways to put a price on a product. What would be the impact on the price of the Kiddo shoes? (6 marks) Total 20 marks