Cyber Novelties Cyber Novelties is a direct sells company that sells small gadgets over the Internet. The marketing research staff at Cleveland-based Cyber Novelties has developed the following annual sales estimate: Proposed Selling Sales Estimate (Units) Price $8 $10 $15 $20 $24 55,000 22,000 14,000 5,000 2,800 The demand is insensitive below $8. The new product has an annual fixed cost of $60,000 and a variable cost of $7 per unit. 1. Referring to Cyber Novelties above, calculate the elasticity between $10 and $15. 2. What is the breakeven quantity at a price of $10? 3. Referring to Cyber Novelties above, which of the proposed selling prices would generate the largest profit? 4. After conducting additional marketing research, Cyber Novelties estimates that by increasing the spending $75,000 annually for advertising and $0.05 per-unit allocation for extra promotion on the web will produce the following increases in estimated sales: 143,000 units at an $8 unit selling price, 48,000 units at $10, 18,000 units at $15, 12,000 units at $20, and 8,000 units at $24. Indicate the feasible range of prices if Cyber Novelties implements the advertising and promotional program. 5. Calculate Cyber Novelties net profits and calculate its return on investment (ROI)[1] with: (1) a $60,000 investment, and (2) with the addition of the $75,000 investment. 6. Indicate the feasible price or prices if the advertisement and promotional proposal is not implemented but management insists on at least a $25,000 target return.
Cyber Novelties Cyber Novelties is a direct sells company that sells small gadgets over the Internet. The marketing research staff at Cleveland-based Cyber Novelties has developed the following annual sales estimate: Proposed Selling Sales Estimate (Units) Price $8 $10 $15 $20 $24 55,000 22,000 14,000 5,000 2,800 The demand is insensitive below $8. The new product has an annual fixed cost of $60,000 and a variable cost of $7 per unit. 1. Referring to Cyber Novelties above, calculate the elasticity between $10 and $15. 2. What is the breakeven quantity at a price of $10? 3. Referring to Cyber Novelties above, which of the proposed selling prices would generate the largest profit? 4. After conducting additional marketing research, Cyber Novelties estimates that by increasing the spending $75,000 annually for advertising and $0.05 per-unit allocation for extra promotion on the web will produce the following increases in estimated sales: 143,000 units at an $8 unit selling price, 48,000 units at $10, 18,000 units at $15, 12,000 units at $20, and 8,000 units at $24. Indicate the feasible range of prices if Cyber Novelties implements the advertising and promotional program. 5. Calculate Cyber Novelties net profits and calculate its return on investment (ROI)[1] with: (1) a $60,000 investment, and (2) with the addition of the $75,000 investment. 6. Indicate the feasible price or prices if the advertisement and promotional proposal is not implemented but management insists on at least a $25,000 target return.
Chapter1: Making Economics Decisions
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![Cyber Novelties
Cyber Novelties is a direct sells company that sells small gadgets over the Internet. The marketing research staff at Cleveland-based Cyber Novelties has developed the following
annual sales estimate:
Proposed Selling
Price
$8
$10
$15
$20
$24
Sales Estimate (Units)
55,000
22,000
14,000
5,000
2,800
The demand is insensitive below $8. The new product has an annual fixed cost of $60,000 and a variable cost of $7 per unit.
1. Referring to Cyber Novelties above, calculate the elasticity between $10 and $15.
2. What is the breakeven quantity at a price of $10?
3. Referring to Cyber Novelties above, which of the proposed selling prices would generate the largest profit?
4. After conducting additional marketing research, Cyber Novelties estimates that by increasing the spending $75,000 annually for advertising and $0.05 per-unit allocation for
extra promotion on the web will produce the following increases in estimated sales: 143,000 units at an $8 unit selling price, 48,000 units at $10, 18,000 units at $15, 12,000
units at $20, and 8,000 units at $24. Indicate the feasible range of prices if Cyber Novelties implements the advertising and promotional program.
5. Calculate Cyber Novelties net profits and calculate its return on investment (ROI)[1] with: (1) a $60,000 investment, and (2) with the addition of the $75,000 investment.
6. Indicate the feasible price or prices if the advertisement and promotional proposal is not implemented but management insists on at least a $25,000 target return.
7. This project only has an initial budget of $60,000 and management wishes to initially gain maximum market share while trying to maintain respectable revenues; what price
should Cyber Novelties initially charge? And, what quantity should they initially produce? After operating for a while, management is willing to provide additional funding; what
do you think the long-run pricing and production strategy should be?
8. Cyber Novelties plan to sell an additional 15,000 units through a retail channel. It will cost Cyber Novelties' $5000 to promote to B2B customers, plus they will have to pay a
distributor a 10% commission. Given that the pricing will be consistent with the price you found that maximizes profits with advertising, and using a functional discount of
25/20[2], (1) how much are the retailers' mark-up (in $'s)? (2) How much is the wholesaler's mark-up (in $'s)? (3) what does Cyber Novelties pay the distributor. And, (3) how
much is Cyber Novelties' profit? (4) is this worth doing?
[1] ROI = net profits after taxes divided by total assets. In this case the assets are the investments
[2] A functional discount is the park-up on selling price in a channel, starting from the retailer and working back to the producer. In this case, the retailer has a 25% mark-up, and the
wholesaler has a 20% mark-up. You treat the commission as another mark-up between the wholesaler and the producer.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6f6822fc-e8d6-45ff-b01c-42a32c04c934%2F3d84f434-5088-4ac0-bb12-11dad3b03dc0%2Fka0ijo8_processed.png&w=3840&q=75)
Transcribed Image Text:Cyber Novelties
Cyber Novelties is a direct sells company that sells small gadgets over the Internet. The marketing research staff at Cleveland-based Cyber Novelties has developed the following
annual sales estimate:
Proposed Selling
Price
$8
$10
$15
$20
$24
Sales Estimate (Units)
55,000
22,000
14,000
5,000
2,800
The demand is insensitive below $8. The new product has an annual fixed cost of $60,000 and a variable cost of $7 per unit.
1. Referring to Cyber Novelties above, calculate the elasticity between $10 and $15.
2. What is the breakeven quantity at a price of $10?
3. Referring to Cyber Novelties above, which of the proposed selling prices would generate the largest profit?
4. After conducting additional marketing research, Cyber Novelties estimates that by increasing the spending $75,000 annually for advertising and $0.05 per-unit allocation for
extra promotion on the web will produce the following increases in estimated sales: 143,000 units at an $8 unit selling price, 48,000 units at $10, 18,000 units at $15, 12,000
units at $20, and 8,000 units at $24. Indicate the feasible range of prices if Cyber Novelties implements the advertising and promotional program.
5. Calculate Cyber Novelties net profits and calculate its return on investment (ROI)[1] with: (1) a $60,000 investment, and (2) with the addition of the $75,000 investment.
6. Indicate the feasible price or prices if the advertisement and promotional proposal is not implemented but management insists on at least a $25,000 target return.
7. This project only has an initial budget of $60,000 and management wishes to initially gain maximum market share while trying to maintain respectable revenues; what price
should Cyber Novelties initially charge? And, what quantity should they initially produce? After operating for a while, management is willing to provide additional funding; what
do you think the long-run pricing and production strategy should be?
8. Cyber Novelties plan to sell an additional 15,000 units through a retail channel. It will cost Cyber Novelties' $5000 to promote to B2B customers, plus they will have to pay a
distributor a 10% commission. Given that the pricing will be consistent with the price you found that maximizes profits with advertising, and using a functional discount of
25/20[2], (1) how much are the retailers' mark-up (in $'s)? (2) How much is the wholesaler's mark-up (in $'s)? (3) what does Cyber Novelties pay the distributor. And, (3) how
much is Cyber Novelties' profit? (4) is this worth doing?
[1] ROI = net profits after taxes divided by total assets. In this case the assets are the investments
[2] A functional discount is the park-up on selling price in a channel, starting from the retailer and working back to the producer. In this case, the retailer has a 25% mark-up, and the
wholesaler has a 20% mark-up. You treat the commission as another mark-up between the wholesaler and the producer.
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