Camper's Village LTD. Camper's Village produces outdoor camping products, with a specialty in discount pocket knives, and sells them to retailers who sell them directly to consumers. In December 2019, the president of the company, was considering an alternative marketing plan for 2020 that was presented to her by the marketing manager. Based on sales from January through December 2019, the president expected that 2020 sales would amount to 295,000 units. The alternative marketing plan is presented below: 2020 Marketing Plan: "At the present time, we sell the product to retailers for $8.00 per knife. Retailers generally charge the consumers between $9 and $9.50. If we cut our selling price to retailers to $7.50, I expect that the product will do much better. Their increased markup will give them the incentive to display our product more prominently and to promote it more vigorously to customers. We should support this strategy by supplying more promotional materials to retailers, which I expect would be an increase of $5,500 in Advertising and Promotion costs. Based on the price cut and the increase in advertising and promotion, I expect that we will be able to boost our sales volume by 18 percent to 348,100 units in 2020." The president received cost data from the company's CFO. The CFO expects that the cost data below are also reliable estimates for 2020 for a production volume up to 400,000 units. Beyond 400,000 units, the company would have to rent additional machines (with a capacity of 100,000 units each), which would increase fixed manufacturing overhead costs by $45,000 per machine. 2019 Cost Data Manufacturing Costs for knives (based on production volume of 295,000 units): $0.80 per unit $9.50 per hour (each worker can make 20 units in 1 hour) $0.65 per unit Direct Materials: Direct Labor: Packaging: Variable Manufacturing Overhead: $1.55 per unit Fixed Manufacturing Overhead: $500,000
Camper's Village LTD. Camper's Village produces outdoor camping products, with a specialty in discount pocket knives, and sells them to retailers who sell them directly to consumers. In December 2019, the president of the company, was considering an alternative marketing plan for 2020 that was presented to her by the marketing manager. Based on sales from January through December 2019, the president expected that 2020 sales would amount to 295,000 units. The alternative marketing plan is presented below: 2020 Marketing Plan: "At the present time, we sell the product to retailers for $8.00 per knife. Retailers generally charge the consumers between $9 and $9.50. If we cut our selling price to retailers to $7.50, I expect that the product will do much better. Their increased markup will give them the incentive to display our product more prominently and to promote it more vigorously to customers. We should support this strategy by supplying more promotional materials to retailers, which I expect would be an increase of $5,500 in Advertising and Promotion costs. Based on the price cut and the increase in advertising and promotion, I expect that we will be able to boost our sales volume by 18 percent to 348,100 units in 2020." The president received cost data from the company's CFO. The CFO expects that the cost data below are also reliable estimates for 2020 for a production volume up to 400,000 units. Beyond 400,000 units, the company would have to rent additional machines (with a capacity of 100,000 units each), which would increase fixed manufacturing overhead costs by $45,000 per machine. 2019 Cost Data Manufacturing Costs for knives (based on production volume of 295,000 units): $0.80 per unit $9.50 per hour (each worker can make 20 units in 1 hour) $0.65 per unit Direct Materials: Direct Labor: Packaging: Variable Manufacturing Overhead: $1.55 per unit Fixed Manufacturing Overhead: $500,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Camper's Village LTD.
Camper's Village produces outdoor camping products, with a specialty in discount pocket
knives, and sells them to retailers who sell them directly to consumers. In December 2019, the
president of the company, was considering an alternative marketing plan for 2020 that was
presented to her by the marketing manager. Based on sales from January through December
2019, the president expected that 2020 sales would amount to 295,000 units. The alternative
marketing plan is presented below:
2020 Marketing Plan: "At the present time, we sell the product to retailers for $8.00 per knife.
Retailers generally charge the consumers between $9 and $9.50. If we cut our selling price to
retailers to $7.50, I expect that the product will do much better. Their increased markup will
give them the incentive to display our product more prominently and to promote it more
vigorously to customers. We should support this strategy by supplying more promotional
materials to retailers, which I expect would be an increase of $5,500 in Advertising and
Promotion costs. Based on the price cut and the increase in advertising and promotion, I
expect that we will be able to boost our sales volume by 18 percent to 348,100 units in 2020."
The president received cost data from the company's CFO. The CFO expects that the cost data
below are also reliable estimates for 2020 for a production volume up to 400,000 units. Beyond
400,000 units, the company would have to rent additional machines (with a capacity of 100,000
units each), which would increase fixed manufacturing overhead costs by $45,000 per machine.
2019 Cost Data
Manufacturing Costs for knives (based on production volume of 295,000 units):
$0.80 per unit
$9.50 per hour (each worker can make 20 units in 1 hour)
$0.65 per unit
Direct Materials:
Direct Labor:
Packaging:
Variable Manufacturing Overhead: $1.55 per unit
Fixed Manufacturing Overhead:
$500,000
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