The setting is a Ralph Lauren outlet store, and the product line is Polo golf shirts. A product manager and the General Manager for Outlet Sales are analyzing the discounted price to be offered at the outlet store per day. The decision being made is how low a price to select at the start of any given day to generate sales at that price throughout the day. The demand, revenue and variables cost information is collected on the following spreadsheet: Quantity Price Total Rev Marginal Rev Variable Cost 0 $50 $0 $0 $28 1 $48 $48 $48 $28 2 $46 $92 $44 $28 3 $45 $135 $43 $28 4 $44 $176 $41 $28 5 $42 $210 $34 $28 6 $40 $240 $30 $28 7 $38.31 $268 $28 $28 8 $36.50 $292 $24 $28 9 $34.50 $311 $19 $28 10     $16 $28 11     $13 $28 12     $10 $28 13     $7 $28 14     $4 $28 15     $0 $28 16     -$1 $28 17     -$4 $28 18     -$7 $28   QUESTIONS Would you recommended lowering price to the level required to generate 15 per day? Why or why not? What does it mean to “sell at a negative margin”?

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
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Chapter2: Introduction To Spreadsheet Modeling
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The setting is a Ralph Lauren outlet store, and the product line is Polo golf shirts. A product manager and the General Manager for Outlet Sales are analyzing the discounted price to be offered at the outlet store per day. The decision being made is how low a price to select at the start of any given day to generate sales at that price throughout the day. The demand, revenue and variables cost information is collected on the following spreadsheet:

Quantity

Price

Total Rev

Marginal Rev

Variable Cost

0

$50

$0

$0

$28

1

$48

$48

$48

$28

2

$46

$92

$44

$28

3

$45

$135

$43

$28

4

$44

$176

$41

$28

5

$42

$210

$34

$28

6

$40

$240

$30

$28

7

$38.31

$268

$28

$28

8

$36.50

$292

$24

$28

9

$34.50

$311

$19

$28

10

 

 

$16

$28

11

 

 

$13

$28

12

 

 

$10

$28

13

 

 

$7

$28

14

 

 

$4

$28

15

 

 

$0

$28

16

 

 

-$1

$28

17

 

 

-$4

$28

18

 

 

-$7

$28

 

QUESTIONS

  1. Would you recommended lowering price to the level required to generate 15 per day? Why or why not? What does it mean to “sell at a negative margin”?
  2. At the 14 shirts per day, the margin is positive. But what is the operating profit or loss on the 14th, 12th, and 10th?
  3. How many shirts do you recommend selling per color per day? What then is your recommended dollar markup and the markup percentage? What dollar margin and percentage margin is that?
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