“We offer a guitar at every price point for every skill level,” explains Kevin Lello, vice president of marketing at Washburn Guitars. Washburn is one of the most prestigious guitar manufacturers in the world, offering instruments that range from one-of-a-kind, custom-made acoustic and electric guitars and basses to less-expensive, mass-produced guitars. Lello has responsibility for marketing Washburn’s products and ensuring that the price of each product matches the company’s objectives related to sales, profit, and market share. “We do pay attention to break-even points,” adds Lello. “We need to know exactly how much a guitar costs us, and how much the overhead is for each guitar.”

Questions

1. What factors are most likely to affect the demand for the lines of Washburn Guitars?

(a) Bought by a first-time guitar buyer

(b) Bought by a sophisticated musician who wants a signature model?

2. For Washburn, what are examples of

(a) Shifting the demand curve to the right to get a higher price for a guitar line (movement of the demand curve)

(b) Pricing decisions involving moving along a demand curve?

3. In Washburn’s factory, what is the break-even point for the new line of guitars if the retail price is?

(a) $349,

(b) $389,

(c) $309? Also,

(d) If Washburn achieves the sales target of 2,000 units at the $349 retail price, what will its profit be?

4. Assume that the merger with Parker leads to the cost reductions projected in the case. What will be the

(a) New break-even point at a $349 retail price for this line of guitars

(b) New profit if it sells 2,000 units?

5. If for competitive reasons, Washburn eventually has to move all its production back to Asia,

(a) Which specific fixed and variable costs might be lowered

(b) What additional fixed and variable costs might it expect to incur?