Hai Vu is the new president of Pacific Coast Optics (PCO) a small manufacturing firm in Sacramento,
Question:
Hai Vu is the new president of Pacific Coast Optics (PCO) a small manufacturing firm in Sacramento, CA which produces fiber lenses for Street Mapping System, Infrared Lens for Anti-Terrorism Detection, and Camera Lenses for the Mars Rove. Hai Vu recently bought this company from his former employer. PCO used brokers to sell to wholesalers who marketed to retailers. Hai Vu occasionally thought about eventually developing his own sales force, but that was still some time away. Hai Vu is currently taking a second look at his plan to improve his firm’s profit performance. In 2019 PCO had a modest profit of $160,000; his 2020 goal is to increase this by 25%.
The 2019 retail selling prices of the three products PCO sold were $100,000 (Camera Lenses for the Mars Rove, $70,000 (Street Mapping Systems), and $25,000 (Infrared Lens for Anti-Terrorism Detection) per product, accounting for 25%, 40%, and 35%, respectively, of retail sales. In 2019, PCO paid its brokers a 6% commission on all products sold to wholesalers. Wholesalers margin was 28% on retailer purchase price while retailers’ markup was 39% on wholesaler selling price. PCO’s 2019 material and labor costs per product ran about $20,000, while packaging and crating costs were $500 per product.
Hai Vu estimates machinery maintenance expenditures to be about $90,000 per year. PCO uses both “push” and “pull” promotional approaches to marketing through their channels of distribution. PCO products aside a $5 product information brochure for every product . In 2019, PCO attended two national trade shows at $9,000 each and 4 regional trade shows at about $4,000 each. PCO spent nearly $240,000 advertising in national consumer magazines and an additional $30,000 in trade publications to wholesalers and retailers. All of these will repeat for 2020.
Broker commission for 2020 will increase to 12% while packaging crating costs will go up to $505 per product. Hai Vu also plans to increase 2020 manufacturer selling price by about $2000 per product.
Assuming no changes in costs and prices other than those mentioned earlier, how will Hai Vu’srequired level of sales (RLS) to reach the 2020 profit goal, in units and dollars, differ from those for the 2019 profit goal, in units and dollars? That is, will they go up, down or stay the same
Q01. What was the weighted average retail selling price of a typical PCO PRODUCT in 2019? Based on this, what was the 2019 retailer’s cost, the wholesaler selling price, the wholesaler’s cost and therefore PCO’s manufacturer selling price of a typical product?
Q02.Starting with the weighted retail selling price, calculate PCO’s 2019 manufacturer selling price of a typical product in a single step, using the markup chain concept.
Q03.Line itemize, then total these to determine PCO’s 2019 unit variable cost of a typical product.
Q04.What was PCO’s 2019 $Contribution and %Contribution for a typical product?
Q05.What was PCO’s (do not itemize) Total Fixed Cost in 2019? Hence, what was their Breakeven Point in number of products and dollar sales? (caution: always calculate $ as rounded-up # * USP)
Q06.What was PCO’s TFC + Profit in 2019? Hence, what was their 2019 Required Level of Sales or RLS in number of products and dollar sales? (caution: always calculate $ as rounded-up # * USP)
Q07.What is the proposed PCO manufacturer selling price per product and $ profit goal for 2020?
Q08. Line itemize, then total these to estimate PCO’s 2020 unit variable cost per product.
Q09.Estimate PCO’s 2020 $Contribution and %Contribution for a typical product?
Q10.Estimate PCO’s (do not itemize) Total Fixed Cost in 2020? Therefore what was their Breakeven Point in number of products and dollar sales?
Q11.Estimate PCO’s TFC + Profit goal for 2020? Therefore what is their 2020 Required Level of Sales or RLS, i.e. BEP with profit included, in number of products and dollar sales?
Q12.Therefore, estimate the difference (2020 minus 2019) in PCO’s RLS in Number of Products and Dollar Sales to reach the profit goal for 2020 vs 2019?
Exploring Management
ISBN: 978-1119231936
5th edition
Authors: John R. Schermerhorn, Daniel G. Bachrach