Template - To Help Guide You Through The Math TANSTAAFL Let's Do The Math! Helpful Hint: "Yellow" Are "CASE FACTS" - Remainder Needs Your Critical Thinking What's The Math? At Everyday At At Some Detail Price Promotion Weighted Price Avg. Price WAIJA Required Margin Mix % Mix Of Total WAIJA Business WAIJA Discount To Consumer Mix % Sell Price To Consumer Mix 9 WAIJA Gross Profit Sell Price To WAIJA WAIJA Mark-Up % AA-YSR Required Mark-Up Sell Price To AA-YSP AA-YSR Gross Profit AA-YSR Margin % TANSTAAFL Product Cost/ Unit TANSTAAFL Incr. Shipping/Unit TANSTAAFL CG TANSTAAFL Gross Profit/ Unit TANSTAAFL Margin TANSTAAFL Mark-Up % QUESTION 1 - TANSTAAFL Break Even Units QUESTION 1 - TANSTAAFL Break Even Dollars Project Business Projected CG Projected Gross Profit Annual Expense (Fixed Cost) QUESTION 2 TANSTAFFL Projected Profit QUESTION 3 TANSTAFFL OPTIONS - INCLUDE? Math - Your OptionsStudent Assignment TANSTAAFL Let's Launch A Business Who Are These Company: TANSTAAFL = "There Ain't No Such Thing As A Free Lunch" (REALITY) Companies? Manufacturer: WAC = "We Are Cheap" (TRUTH) Truth In Advertising Broker: AA-YSR = "Ask And - You Shall Receive" (SERVICE) Retailer: WAIJA = "We Are Incredible Just Ask" (BET ON IT) Big Picture - An Kelley Students - Seniors.. three friends came upwith an idea for an interactive software involving a business Opportunity For educational simulation game for children ages8-12; the product will besold in the toy department. In this TANSTAAFL.. game, children are exposed to the basics of business This insight is considered useful, regardless of what profession thesechildren end up pursuing. It includes insight into drivers of business decisions. Their intention An Overview would be to run this business while they complete one more year of school; then they will decide if/who will join the business full time "AA-YSR" Broker Opportunity.. a large broker of educational toys named "AA YSR" approached TANSTAAFL and expressed interest in representing TANSTAAFL; they specifically believe that they can obtain distribution in a major retailer named "WAIJA" if the price point is attractive. The Situation.. the TANSTAAL team needs to gather information requested by the distributor and determine if they can justify borrowing money required from relatives and friends What AA-YSR Shared... Broker Mark-Up.. they require ("work on") 10%% mark-upto the retailer with all vendors they represent; this is for account management (selling activity). They do not warehouse the product; they do not manage the Requirements accounts receivable. TANSTAFFL Has To Retailer Margin.. the massretailers require a 35% margin on software in the toy department during non- Work With promotional periods ("everyday"); they require a 25%% margin during promotional periods Competitive Retail Price.. the distributor knows that a price to the consumer of $9.99 will be required by the retailer. Retailer Promotions.. this product will be promoted for the winter holidays; they drop the retail price to the consumer by 20%%; they require a promotional discount from the vendor to allow for a 25%% retailer margin. The distributor estimatesthat 60%% of the annual volume willbe sold with during this promotional period. Projected Volume... assuming that TANSTAAFL can meet the requirements above, AA-YSR believes the retailer will commit to first year annual business of 10,000 units- and will be "an exclusive" retailer for one year. What TANSTAFFL Cost Of Goods.. they've gotten three quotes from reputable vendors to produce and package the educational Believes... software. The lowest cost was from a vendor named "WAC" Assumptions About The Quantity - Units "WAC" Pricing Business 10,000 $1.00 Note: assume that to get these prices, TANSTAAFL must agree to an exclusive vendor agreement for the first year Family And Friends Loans.. they can borrow whatever is needed- BUT - they must be able to pay it all back within a year. (In other words - they must demonstrate that they can at least break even in Year 1.) Their Plans... continue school and work on the side to develop further products and prepare for year 2. Cost Of Year One Operations.. they would need to commit to one year with the following minimal expectations for this start-up company What's Needed Annual Amount Rent... office and warehouse $15,00 Administration.. take orders, etc $15,000 Warehouse Person.. fulfill orders $15,000 TANSTAAFL Owners Compensation Professional Fees (Incorporate; Legal; Etc.) $5,000 Total Estimated Expenses (Fixed Costs $50,000 Estimated Incremental Shipping Cost/Unit $0.50 Life Is Great.. The three partners are ECSTATIC They have a likely order for 10,000 units. The everyday retail selling price is $9.99 TANSTAFFL Is On It's and their cost from the manufacturer for production including packaging and delivered to their warehouse is ONLY Way! $1.00! How can they miss??? That's $8.99 over the selling price to the consumer. They know they're going to be rich! Questions? Break-Even... how many units do they need to sell before they make money? Profits.. how much money will they make - with these assumptions? Options.. what would you do