Cyber NoveltiesCyber 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 followingannual sales estimate:Proposed SellingPrice$8$10$15$20$24Sales Estimate (Units)55,00022,00014,0005,0002,800The 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 forextra 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, 12,000units 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 priceshould Cyber Novelties initially charge? And, what quantity should they initially produce? After operating for a while, management is willing to provide additional funding; whatdo 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 adistributor 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 of25/20[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) howmuch 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 thewholesaler has a 20% mark-up. You treat the commission as another mark-up between the wholesaler and the producer.

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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 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?

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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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