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Year 1 Plan (Brand Equity and Awareness Building) Since Bounty Basic is launching in the mid-tier paper towel segment, it is important that costs are minimized wherever possible. As such the finance team is recommending a launch without the support of television media. One alternative awareness building strategy that has been suggested is print media. The marketing team is intent on printing copies that scored well on consumer tests. Based on the copy scores, awareness building and conversion to purchase intent, you have received a model which projects the volume growth per €10,000 investment in magazines and newspapers. The table below summarizes the projected results:

Year 1 Plan (Brand Equity and Awareness Building) Since Bounty Basic is launching in the mid-tier paper towel segment, it is important that costs are minimized wherever possible. As such the finance team is recommending a launch without the support of television media. One alternative awareness building strategy that has been suggested is print media. The marketing team is intent on printing copies that scored well on consumer tests. Based on the copy scores, awareness building and conversion to purchase intent, you have received a model which projects the volume growth per €10,000 investment in magazines and newspapers. The table below summarizes the projected results:

FINANCIAL ACCOUNTING
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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Bounty High-Tier Pricing in other European markets: Bounty Pricing in other EU Markets Cost to the Retailer Retailer Mark-Up on Cost VAT (ex VAT) 4.25 4.68 4.91 4.50 ? Austria Sweden France Switzerland Germany *Shelf Price assumes items not on promotion. 20% 19% 20% 20% 20% 10.00% 12.00% 5.50% 17.50% 19.00% Shelf Price (incl VAT)* 5.61 6.24 6.22 6.35 6.20 Year 1 Plan (Brand Equity and Awareness Building) Since Bounty Basic is launching in the mid-tier paper towel segment, it is important that costs are minimized wherever possible. As such the finance team is recommending a launch without the support of television media. One alternative awareness building strategy that has been suggested is print media. The marketing team is intent on printing copies that scored well on consumer tests. Based on the copy scores, awareness building and conversion to purchase intent, you have received a model which projects the volume growth per €10,000 investment in magazines and newspapers. The table below summarizes the projected results: Print Media Cost Volume Uplift (units) 10,000.00 37,235.00 20,000.00 86,882.00 30,000.00 153,078.00 40,000.00 235,824.00 50,000.00 335,118.00 60,000.00 455,098.00 70,000.00 537,843.00 80,000.00 570,941.00 90,000.00 612,314.00 100,000.00 637,137.00 110,000.00 661,961.00 Question 1: Determine the optimal level of investment in print media, in terms of maximizing your profit, and justify your choice. (Note this strategy is only applicable in Year 1, yet the volume uplift will hold thereafter).
Transcribed Image Text:Bounty High-Tier Pricing in other European markets: Bounty Pricing in other EU Markets Cost to the Retailer Retailer Mark-Up on Cost VAT (ex VAT) 4.25 4.68 4.91 4.50 ? Austria Sweden France Switzerland Germany *Shelf Price assumes items not on promotion. 20% 19% 20% 20% 20% 10.00% 12.00% 5.50% 17.50% 19.00% Shelf Price (incl VAT)* 5.61 6.24 6.22 6.35 6.20 Year 1 Plan (Brand Equity and Awareness Building) Since Bounty Basic is launching in the mid-tier paper towel segment, it is important that costs are minimized wherever possible. As such the finance team is recommending a launch without the support of television media. One alternative awareness building strategy that has been suggested is print media. The marketing team is intent on printing copies that scored well on consumer tests. Based on the copy scores, awareness building and conversion to purchase intent, you have received a model which projects the volume growth per €10,000 investment in magazines and newspapers. The table below summarizes the projected results: Print Media Cost Volume Uplift (units) 10,000.00 37,235.00 20,000.00 86,882.00 30,000.00 153,078.00 40,000.00 235,824.00 50,000.00 335,118.00 60,000.00 455,098.00 70,000.00 537,843.00 80,000.00 570,941.00 90,000.00 612,314.00 100,000.00 637,137.00 110,000.00 661,961.00 Question 1: Determine the optimal level of investment in print media, in terms of maximizing your profit, and justify your choice. (Note this strategy is only applicable in Year 1, yet the volume uplift will hold thereafter).
Pricing Decisions The commercial team has recommended the optimal pricing strategy for Bounty Basic to be 66% of the cost to retailer of existing Bounty High-tier.¹ The product cost (COGS) is 50% of revenue received by P&G. (table below) The marketing expenses to deliver these sales are €150,000, incurred annually. There is an additional €80,000 in Sales and Administration Expenses (combined), incurred annually. The firm pays corporate tax in Germany at a rate of 15%, one year in arrears, and given that there is a double taxation agreement between Germany and the USA, profits will not be taxed in the USA.² To launch this product P&G will purchase machinery costing €2,500,000 that can be depreciated straight-line to zero over 5 years, and will also require an upfront investment in net working capital of €100,000. All costs quoted are ex- VAT and costed at 2022 prices. The team in Germany has advised that the local VAT rate is 19% ³ and inflation is hitting an all-time high of about 7.9% as of August 20224. Inflation is expected to stabilize at 5% for 2023 and beyond.
Transcribed Image Text:Pricing Decisions The commercial team has recommended the optimal pricing strategy for Bounty Basic to be 66% of the cost to retailer of existing Bounty High-tier.¹ The product cost (COGS) is 50% of revenue received by P&G. (table below) The marketing expenses to deliver these sales are €150,000, incurred annually. There is an additional €80,000 in Sales and Administration Expenses (combined), incurred annually. The firm pays corporate tax in Germany at a rate of 15%, one year in arrears, and given that there is a double taxation agreement between Germany and the USA, profits will not be taxed in the USA.² To launch this product P&G will purchase machinery costing €2,500,000 that can be depreciated straight-line to zero over 5 years, and will also require an upfront investment in net working capital of €100,000. All costs quoted are ex- VAT and costed at 2022 prices. The team in Germany has advised that the local VAT rate is 19% ³ and inflation is hitting an all-time high of about 7.9% as of August 20224. Inflation is expected to stabilize at 5% for 2023 and beyond.
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