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 Sales Estimate (Units) $8 55,000 $10 22,000 $15 14,000 $20 5,000 $24 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 is a direct sells company that sells small gadgets over the Internet. The
|
Proposed Selling |
Sales Estimate (Units) |
| $8 | 55,000 |
| $10 | 22,000 |
| $15 | 14,000 |
| $20 | 5,000 |
| $24 | 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
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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