-USE EXCEL

The annual demand of 100 units

Average order size of 10 units

Average selling price is $10.00

Average material cost is $8.50

The average profit per unit sold is $1.50

Fixed shipping cost is $5.00

Variable shipping cost is $1.00

The external consulting firm has estimated that the number of customers are a function of price:

Number of Customers = Total Market Size x exp( exponential factor*Landed Cost)

The total market size = 100 million customers and the landed cost is the total unit cost for the customer, including the price of the product and shipping costs.

For example, the landed cost to the customer is the purchase price ($10) plus the transportation cost ($5 per order plus $1 per unit.)

So, If I order 10 units, the landed cost is: Total Cost/number of units = ((10*$10.00)+$5.00+(10*$1.00))/10=$11.50

If Average Selling Price, Average Material Cost, and Fixed Shipping remains CONSTANT and Average Annual Demand per customer, Average Order size

variable shipping, and Total market size CHANGES

A) How will this impact profitability?

B) How and why these inputs are likely to change and examine how sensitive this is to change

C) Which of the inputs are critical to profitability?