1. (a) You are the brand manager for Velvetskin body lotion at Bew-T cosmetics. Velvetskin's annual...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
1. (a) You are the brand manager for Velvetskin body lotion at Bew-T cosmetics. Velvetskin's annual sales are 300.000 bottles, with each bottle costing $5 to produce, and selling for $12. The research and development department have just developed a new body lotion formula. You must decide whether to change the Velvetskin product to the new formula or stay with the old formula. The variable cost of production for the new formula will be $7 per bottle. This is slightly higher than for the old formula, but you feel an increase in sales might compensate for the higher costs. You plan to sell the new Velvetskin for $12 per bottle. You believe that annual sales will fall into one of three scenarios: High (600,000 bottles sold); Medium (300,000 bottles sold) or Low (200,000 bottles sold). You estimate the chances of these scenarios to be 0.3, 0.4 and 0.3 respectively. (i) Under which if any of the three scenarios would you introduce the new [3] Velvetskin formula? Explain your reasoning. (ii) Given that you do not know which sales scenario will hold, would you [3] introduce the new Velvetskin formula? Explain your reasoning. (b) For the Bew-T problem in (a), you are considering hiring Inside Info, a leading market research company. Although Inside cannot predict sales figures exactly, they will indicate whether they believe the new formula product will be a "Hit" or a "Flop". Based on historical performance, Inside are equally likely to indicate Hit or Flop. If Inside tells you the new formula is going to be a Hit, you believe the probabilities of High, Medium and Low sales scenarios will be 0.6, 0.3 and 0.1 respectively. If they say Flop, then you believe the probabilities will be 0.0, 0.5 and 0.5 respectively. (1) Would you introduce the new formula if Inside indicates it will be a [5] Hit? Explain your reasoning. (ii) Would you introduce the new formula if Inside indicates it will be a [5] Flop? Explain your reasoning. [4] (iii) Inside state a fee of $150,000 to perform this test market study on your new formula. Would you hire Inside at this fee? If your answer is No, what is the maximum fee you would be willing to pay for the information they are providing? Explain your reasoning. (c) Suppose that, in a Linear Programme with two decision variables ₁ and [5] 22, you are given two constraints: A. 72₁ +3₂ ≤ $$80; B. 4z₁ + 6x₂ ≤ 12. When you run a solver, the solver says that: for constraint A, the shadow price is S$0.45; for constraint B, there is a slack of 3. Which (if either) of the constraints A and B is/are binding? Which is/are nonbinding? Explain your reasoning. 1. (a) You are the brand manager for Velvetskin body lotion at Bew-T cosmetics. Velvetskin's annual sales are 300.000 bottles, with each bottle costing $5 to produce, and selling for $12. The research and development department have just developed a new body lotion formula. You must decide whether to change the Velvetskin product to the new formula or stay with the old formula. The variable cost of production for the new formula will be $7 per bottle. This is slightly higher than for the old formula, but you feel an increase in sales might compensate for the higher costs. You plan to sell the new Velvetskin for $12 per bottle. You believe that annual sales will fall into one of three scenarios: High (600,000 bottles sold); Medium (300,000 bottles sold) or Low (200,000 bottles sold). You estimate the chances of these scenarios to be 0.3, 0.4 and 0.3 respectively. (i) Under which if any of the three scenarios would you introduce the new [3] Velvetskin formula? Explain your reasoning. (ii) Given that you do not know which sales scenario will hold, would you [3] introduce the new Velvetskin formula? Explain your reasoning. (b) For the Bew-T problem in (a), you are considering hiring Inside Info, a leading market research company. Although Inside cannot predict sales figures exactly, they will indicate whether they believe the new formula product will be a "Hit" or a "Flop". Based on historical performance, Inside are equally likely to indicate Hit or Flop. If Inside tells you the new formula is going to be a Hit, you believe the probabilities of High, Medium and Low sales scenarios will be 0.6, 0.3 and 0.1 respectively. If they say Flop, then you believe the probabilities will be 0.0, 0.5 and 0.5 respectively. (1) Would you introduce the new formula if Inside indicates it will be a [5] Hit? Explain your reasoning. (ii) Would you introduce the new formula if Inside indicates it will be a [5] Flop? Explain your reasoning. [4] (iii) Inside state a fee of $150,000 to perform this test market study on your new formula. Would you hire Inside at this fee? If your answer is No, what is the maximum fee you would be willing to pay for the information they are providing? Explain your reasoning. (c) Suppose that, in a Linear Programme with two decision variables ₁ and [5] 22, you are given two constraints: A. 72₁ +3₂ ≤ $$80; B. 4z₁ + 6x₂ ≤ 12. When you run a solver, the solver says that: for constraint A, the shadow price is S$0.45; for constraint B, there is a slack of 3. Which (if either) of the constraints A and B is/are binding? Which is/are nonbinding? Explain your reasoning.
Expert Answer:
Answer rating: 100% (QA)
a To determine whether to introduce the new Velvetskin formula we need to calculate the expected profit under each scenario Under the old formula the profit per bottle sold is 7 12 selling price 5 pro... View the full answer
Related Book For
Advertising Promotion And Other Aspects Of Integrated Marketing Communications
ISBN: 9781111580216
9th Edition
Authors: Terence Shimp, Craig Andrews
Posted Date:
Students also viewed these economics questions
-
You are the brand manager for a firm that makes herbs, spices, and other food additives. You have had complaints from some of your retail outlets that they are finding empty bottles of pure vanilla...
-
a You are the operations manager for Amorphous X Services Ltd Your company has been invited by a group of manufacturer of cosmetics products to assist them to design a facility in the Tema industrial...
-
Assume you are the brand manager of Mountain State Bottled Water. This new brand competes in a product category with several well-known brands. Your marketing communications objective is to generate...
-
The average of 4 consecutive odd positive integers is 16. The product of the smallest and largest positive odd integer is 1. 210 2. 247 3. 294 4. 320 None of the above 5.
-
Put yourself in the yacht dealers shoes. You currently are considering other order quantities in addition to 50 and 100. Find the optimal order quantity, that is, the exact quantity that maximizes...
-
Americans work longer hours than residents of most other countries. Does this mean that American-born workers work more than do immigrants? a. Conduct a statistical test to determine whether...
-
For the given table of observed frequencies: a. Compute the row totals, the column totals, and the grand total. b. Construct the corresponding table of expected frequencies. c. Compute the value of...
-
Jameson is a 32-year-old father of three who thought he had finally found a career. While working as an assistant manager at a local shoe store, a customer, Vijay, befriended Jameson and invited him...
-
what are your thoughts on the answers below about Effective listeners 1.What are the primary causes of your listening challenges? The primary causes of my listening challenges are that I like to...
-
The Purchases Ledger Control Accounts of Pfozer, a private company, for the month of January 2018 was prepared as shown below: Cash paid to suppliers Discount received Balance c/f Purchases Ledger...
-
Bahrain Car Parks Company B.S.C. (Bahrain Bourse, #CPARK) has the information shown below (all numbers are in thousands Sales Cost of Goods Sold Accounts Receivable Inventory Total current assets...
-
Describe how configuration control and change control relate to each other.
-
Describe three problems that might be solved using genetic algorithms that were not described in this chapter.
-
What is Lean Thinking?
-
What is configuration management (CM)? Discuss the various task elements of the CM discipline.
-
What is Lean SE?
-
Suppose a toy craze in Canada makes a particular Swiss-produced toy very popular. What effect would this toy have on the balance of trade? It would tend to affect Canada's balance of payments but not...
-
For the data in Exercise 17-19, use the FIFO method to summarize total costs to account for, and assign these costs to units completed and transferred out, and to units in ending work in process....
-
From your perspective, discuss how pay-for-performance programs, or scan-downs, would, if widely implemented, virtually eliminate forward buying and diverting.
-
Your company sells antifreeze. Sales to consumers take place in a very short period, primarily September through December. You want to tie in a promotion between your product and the product of...
-
What is the purpose of the Federal Trade Commissions price-off regulations based on the Fair Packaging and Labeling Act?
-
The crowning of pulleys is done to (a) make the belt run in the centre of the pulley face width (b) strengthen the pulley (c) give better shape to pulley (d) decrease slip.
-
If the percentage slip is same on both the driving and driven pulleys, then the speed ratio will (a) increase (b) decrease (c) remain same (d) unpredictable.
-
Considering centrifugal tension in a belt, the maximum linear velocity of belt is proportional to (a) cube root of maximum tension (b) square root of maximum tension (c) maximum tension (d)...
Study smarter with the SolutionInn App