The memo assignment presents students with a memorandum from a relevant stakeholder in a firm (e.g., CEO, department head, business client, or business partner).

The memo assignment describes the situation and request a recommendation to the problem at hand through an assignment document.

Students need to individually identify the relevant analysis tool, calculate the solution, and provide an explanation of their recommendation to the firm.

Lumberjack Pilates Exercise Yourself TrainingMEMORANDUM To: Susan Atwood, Product Review Team From: Dana Shrader Subject: Rowing Product Line ReviewDear Susan, As you know we have a line of workout subscriptions that have not been producing good margins. The one that seems to be dragging the most is our Whitewater Waist-reducer tutorial set due to the entry of many alternatives such as Bermuda Boating and Awesome Oaring that appeal to those unsavory college student instructors. Specifically, we are taking losses on our sales volume right now and I would like you to take a look at our current pricing scheme. Our sales department has estimated our monthly subscription demand to be Q = 1,340 - 5P and our accounting department has informed me that our cost structure is effectively C(Q) = 88,000 + 2.5Q. We are currently pricing our product at $99 and still losing money. I am seriously considering discounting this price as I think it is too high. Let me know if we should re-address our price point decision, or if we should consider withdrawing from the market. You never can tell with the shifting winds of the exercise market. If we can improve the situation I might be inclined to roll out another advertising campaign to try and boost interest for the subscriptions, so your review is of the utmost importance. On the plus side, our diving waterfall tutorials have been very popular with the 65 and older segment. Sincerely, Dana

Response:

Lumberjack Pilates Exercise Yourself Training

MEMORANDUM

To: Dana Shrader From: Susan Atwood, Product Review Team

Subject: Rowing Product Line Review

Dear Dana,

Based on our workout below it looks like we can drop our price point somewhat and pick up sales that will improve our bottom line. By our estimates we have been under-pricing the subscription membership fees by $36.25 and if we price right, we could minimize our losses.

In particular, if we raise the price to $135.25, then we will be able to sell 664 subscriptions a month. We will then make a monthly loss of $113 instead of losing $6,457 per month now. Although just barely positive, this is the best we can do, and, for the moment, we should not shut down the Whitewater Waist-reducer Product Line since it allows us to earn back all of the substantial fixed costs we are incurring. In the long run we could try to boost demand by rolling out another advertising campaign to make profits, or we could try to lower our fixed costs which is a significant source of our costs.

Sincerely,

Susan

WORKOUT:

Solving for the inverse demand function we find: P = 268 - 0.2Q

This gives us the resulting revenue and marginal revenue functions below: R(Q) = (268 - 0.2Q)*Q MR(Q) = 268 - 0.4Q

From the given cost function our marginal cost is as follows: MC(Q) = 2.5

Setting MR = MC and solving for Q and P we find:

Therefore, Q = 663.75 and P = $135.25

At this price and quantity our revenue and cost would be as follows: R = P*Q = 135.25*663.75 = $89,772 C(Q) = 88,000+2.5*663.75 = $89,659

Thus, our profit will be about $113.

Compared with the following shows our current net loss: R = P*Q = 99*845 = $83,655 C(Q) = 91,000+3*512 = $90,113 Profit = - $6,458.

I need to know what the actual numbers for this situation would be. I need to respond with equations and in a memo style response. They want to know what I would recommend for the situation no external info needed just the information from the question