Question
Sales + Revenue For the last six months, Wandas sales have broken down as shown below. She has also provided you with her cost for
Sales + Revenue
For the last six months, Wandas sales have broken down as shown below. She has also provided you with her cost for each variety of treat.
Products/Services | % of Sales | Sales Price | COGS | Contribution | Profit Margin | Weighted Profit Margin |
---|---|---|---|---|---|---|
Party Pooch | 45% | 20.00 | 10.40 | 9.60 | 48.00% | 21.60% |
Chicken Cuties | 18% | 15.00 | 7.80 | 7.20 | 48.00% | 8.64% |
Bison Bites | 5% | 21.00 | 10.80 | 10.20 | 48.57% | 2.43% |
Lamb Lovies | 32% | 24.00 | 12.60 | 11.40 | 47.50% | 15.20% |
(Must equal 100%) | 100% | Average profit margin | 47.87% |
Sales Price | COGS | |
---|---|---|
Chicken Cuties | 1.25 | 0.65 |
Bison Bites | 1.75 | 0.90 |
Lamb Lovies | 2.00 | 1.05 |
Party Pooch | 1.67 | 0.87 |
Cost of Goods Sold
Wandas COGS include the packaging, labeling, the ingredients, and the time it takes to make the treats. Since she can bake them in big batches, her labor cost per unit is very low.
When Wanda ships her products, she charges just what it costs her. Shipping is done on a cost recovery basis and currently she doesnt consider it in her income/expenses.
Income Information
Here is a summary of Wandas Salty Pawz income information for the past 6 months.
INCOME: | ||
---|---|---|
Party Pooch | $ 40,500.00 | |
Chicken Cuties | $ 16,200.00 | |
Bison Bites | $ 4,515.00 | |
Lamb Lovies | $ 28,800.00 | |
TOTAL INCOME: | $ 90,015.00 | |
COST OF GOODS SOLD: | ||
Party Pooch | $ 21,060.00 | |
Chicken Cuties | $ 8,424.00 | |
Bison Bites | $ 2,322.00 | |
Lamb Lovies | $ 15,120.00 | |
Total cost of sales | $ 46,926.00 | |
GROSS PROFIT | $ 43,089.00 | |
Pricing and Demand
Wanda is at capacity for production out of her kitchen, so she believes that she is at the maximum income she can generate with her current structure. If Wanda changes her pricing structure per treat, the following quantities demanded (in units) will result for monthly production. For example, if her Chicken Cuties were priced $1.00/each (or $12.00/unit), she would have orders for 1,000 units of Chicken Cuties. (Please remember, that Wanda may not be fully meeting current market demands so her sales numbers will not necessarily match the corresponding market quantities).
Chicken Cuties | Bison Bites | Lamb Lovies | Party Pooch | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Price ($) | Demand (Q) | Price ($) | Demand (Q) | Price ($) | Demand (Q) | Price ($) | Demand (Q) | |||
$0.75 | 1000 | $1.00 | 1200 | $1.75 | 1500 | $16.00 | 1400 | |||
$1.00 | 900 | $1.25 | 1100 | $2.00 | 1400 | $18.00 | 1200 | |||
$1.25 | 800 | $1.50 | 900 | $2.25 | 1200 | $20.00 | 1100 | |||
$1.50 | 700 | $1.75 | 800 | $2.50 | 1000 | $22.00 | 1000 | |||
$1.75 | 600 | $2.00 | 700 | $2.75 | 800 | $24.00 | 900 | |||
$2.00 | 500 | $2.25 | 500 | $3.00 | 700 | $26.00 | 800 |
Current Production Capacity
Working backwards from Wanda's 6-month revenue numbers and current pricing, we can deduce that Wanda is producing approximately 9,040 treats/month by dividing her 6-month income by price/treat and then dividing this number by 6 to get treats/month. To get units/month, we then divide by 12 (since there are 12 treats in each package) and find that she is producing 754 units/month. Since Wanda has reached her current production capacity, this is the maximum number of units that she can produce a month with her current set up (i.e., working from home, only she is doing the baking, etc.).
6 MONTH INCOME: | Price/ Treat | Treats/ 6 Mos. | Units/ 6 Mos. | Treats/ Month | Units/ Month | |
Party Pooch | $40,500.00 | 1.67 | 24,300 | 2025 | 4050 | 338 |
Chicken Cuties | $16,200.00 | 1.25 | 12,960 | 1080 | 2160 | 180 |
Bison Bites | $4,515.00 | 1.75 | 2,580 | 215 | 430 | 36 |
Lamb Lovies | $28,800.00 | 2.00 | 14,400 | 1200 | 2400 | 200 |
TOTAL INCOME: | $90,015.00 | |||||
Number of Treats | 54,240 | 4,520 | 9,040 | 754 |
Your Task
Using the information above, please answer the following questions supported by your work/calculations:
- Based on the price/quantity tables above, is Wanda currently meeting market demand for her products? (Hint: Look up the price she is charging for each treat in the corresponding table and see if the number of units she is currently selling matches the market demand listed in the chart). If Wanda cannot meet market demand, name two actual competitors (look at market research reports, search the internet, etc.) and one substitute that might fill the supply/demand gap. How much are the competitors charging? How are their products similar to Salty Pawz products? How are they different?
- If Wanda maintains her current production capacity of 753 units/month (i.e., she can't make more units than this), what pricing structure would maximize her gross profit? How many of each type of unit would she produce at what prices? In doing your analysis, use the pricing/quantity tables above to forecast the impact of a pricing change on demand and stay within the pricing ranges given in the pricing/demand chart. Also, use the following formulas:
Revenue = Price * Quantity
Gross Profit = Revenue - Costs of Goods Sold
or Gross Profit = (Price * Quantity) - (COGS/unit * Quantity)
- If Wanda is unable to find additional non-GMO sourcing for her Lamb Lovies and Bison Bites and her suppliers can only produce enough lamb and bison for her to make a maximum of 200 units/month (or 2,400 treats/month) for each type of treat, how does this change your analysis?
- If Wanda had unlimited production capacity and unlimited supply (no sourcing or labor shortages), what pricing structure would maximize her gross profit? How many of each product would she produce at what prices?
Please show your work/calculations to support your conclusions. You may upload a spreadsheet in addition to or instead of a text document, but please make sure to put your name in the spreadsheet. For the purposes of this exercise, please ignore expenses that are not part of COGS. We are only focusing on gross profit for now and will focus on expenses in a later exercise.
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