Spencer Electronics has just developed a low-end electronic calendar that it plans to sell via a cable channel marketing program. The cable programs fee for selling the item is 20 percent of revenue. For this fee, the program will sell the calendar over six 10-minute segments in September. Spencers fixed costs of producing the calendar are $159,000 per production run. The company plans to wait for all orders to come in, then it will produce exactly the number of units ordered. Production time will be less than three weeks. Variable production costs are $27 per unit. In addition, it will cost approximately $5 per unit to ship the calendars to customers. Marsha Andersen, a product manager at Spencer, is charged with recommending a price for the item. Based on her experience with similar items, focus group responses, and survey information, she has estimated the number of units that can be sold at various prices:

Price Quantity

$85 12,900

$75 19,500

$65 32,700

$55 44,100

$45 63,900

Calculate the expected profit for each price

This question is about maximizing profit. In this problem, the cable company is charging 20 percent of the revenue. Why are is it that the 20 percent is being taken off at the front end from the selling price (example one $85 x .20) versus if you left it at $85 and the calculated and minus the 20 percent of revenue at the end from the total profit? If you calculate on the front end the numbers come out different than if you calculate at the end from the total profit. ???

Expected Pr ofitat 585=[(585x(1-0.20) -$32x12.900)-$159.000] =$305,400 Expected Pr ofitat S75=[(S75x(1-0.20)-$32x19,500)-$159.000] =$387,000 Expected Profit at $65=[(565x(1-0.20)-532x32,700) -$159.000] =$495.000 Expected Profit at $55=[(S55x(1-0.20)-532x44.100)-S159.000] =$370.200 Expected Pr ofit at $45=[(545x(1-0.20) - $32x63.900)-S159.000] = $96.600 b. Profit maximizing price $65