Question
Wallys Widget World is an online retailer that makes and sells widgets. There are three models of widgets, each with its own cost of materials
Wallys Widget World is an online retailer that makes and sells widgets. There are three models of widgets, each with its own cost of materials and labor.
Model | Percent of sales | Materials cost | Labor cost | Selling price |
Econowidget base-level widget for the budget-conscious widget user | 35% | $3.50 | $1.50 | $6.99 |
Superwidget adds additional feature for the more demanding widget user | 45% | $4.00 | $1.75 | $8.99 |
Widget Supreme for the more discerning and sophisticated widget user | 20% | $5.25 | $2.00 | $11.99 |
The widgets are all the same size and approximate weight, so shipping costs for each widget (regardless of model) are $2.50, and customers are charged $3.99 per widget. Wallys Widget World has monthly costs below:
Rent $10,000 Utilities 2,000 Administrative salaries 6,000 Overhead/supplies 1,000
In addition, Wallys budgets $3,000 each month on banner ads and search-engine marketing. Assuming the percentage of sales for each product in the product line remains constant, perform the following analyses:
Calculate the break-even volume
Calculate the break-even revenue
Wallys Widget World has a monthly target profit of $5,000. What should be the target volume and revenue for this objective?
Is this a viable target profit? Explain using your calculations. Give an example of another target profit that you think would work and explain why
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