Stark Corp. (manufacturer) manufactures unique shower tiles made from DuPont Corian. Their most popular item is the Tuscan Ridge (TR) tile. The company plans to sell a new tile, the Tuscan Valley (TV) tile, to commemorate their 20th anniversary. The TV tile will be sold to consumers at a suggested retail price of $15 per tile. Stark Corp. will sell the TV tiles to wholesalers, who will then sell the tiles to retailers, who will then sell the tiles to the consumers. The retailers in Stark Corp.'s distribution channel earn a gross margin of 40% on their selling price, while wholesalers earn a gross margin of 20% on their selling price. The only unit variable costs for Stark Corp.'s TV tile are $3.80 (per unit) for materials and $1.40 (per unit) for labor. Assume Stark Corp. has the cost of advertising which will be $45,000 and other fixed overhead costs which are expected to be $55,000 for the TV tiles. Tips for solutions: Consider 'trade margin concept. Gross margin per unit = unit contribution. Compute margin ratio (%) based on selling price. You need to find info in the case or compute numbers to fill in the table below. 2.1 - 2.12: Fill in the table. The table below shows how a brand or manufacturer manager must work backward from the ultimate price to the consumer through the marketing channel to arrive at a product selling price. Unit Selling Price Gross Margin as Dollar Gross percent of Selling Margin per unit ($) Price (%) (= Unit contribution) (= contribution ratio) 2.7) 2.10) 2.4) Marketing Unit Cost of Channel Goods Sold (= Total Variable costs per unit) Manufacturer 2.1) (Stark Corp.) $ Wholesaler 2.2) $ Retailer 2.3) $ Consumer $15 $ 2.8) 2.11) 2.5) 2.6 % $ 2.12) 2.9) $ % $ N/A N/A N/A 2.13) What is the Beak-even volume and Dollar break-even for TV tile of Stark Corp. (= manufacturer)? (6pts) 2.14) How many TV tiles does Stark Corp. (= manufacturer) need to sell in order to make a $50,000 profit? (4pts) Read the Following Added Case Story The board members of Stark Corp. (manufacturer) have met and decided to conduct an active launching promotion for its new product-Tuscan Valley (TV) tiles. Stark Corp. decides to use newspapers to promote its TV tile in the introductory year and distribute its TV tile in major metropolitan areas that account for 20% percent of the total U.S. market volume for shower tiles. Newspaper advertising will carry a coupon that will entitle the consumer to receive $4.00 off the price of the first TV tile purchase. The retailers will receive the regular margin and be reimbursed for redeemed coupons by Stark Corp. Past experience indicates that for every ten tiles sold during the introductory year, one coupon will be returned. Tips for solutions: Consider 'coupon expenses 'as 'discount. See costs items in the original case story first. Unit contribution for Stark Corp. should be changed when you consider 'coupon expenses. 2.15) What is the Unit contribution ($) for TV tile of Stark Corp. (= manufacturer) with the changed variable costs (due to discount)? (4 pts) 2.16) What is the Beak-even volume and Dollar break-even for TV tile of Stark Corp. (= manufacturer) with the changed variable costs (due to discount)? (6pts)
