Lisa, an astute student in the SCSU MBA program, noted the popularity of the HP-12c calculators used by students in finance classes. She also saw that some business school professors had stubbornly carried these calculators for decades, like some kind of religious talisman. She saw an opportunity and decided to start a company that sells accessories that support the HP-12c lifestyle and make the lives of HP-12c lovers more enjoyable and fulfilling.

Lisa is considering including a few products in her starter line:

Carrying bag: Made of genuine leather and spandex. It comes in various colors. Belt or bag clips to keep the HP-12c always close at hand.

The carrying case would be sold to the end consumer for $39.99. Lisa will not sell directly to the consumer, but will use a wholesaler to sell to a retailer (for example, college book stores). The retailer's margin is 50% and the wholesaler's margin is 12%. The fixed cost associated with manufacturing the crates is $280,000 and the variable costs per case are $6.25. Lisa considers an advertising budget of $300,000. Various variable costs (for example, shipping and handling) paid by Lisa's company are $0.08 per case. Lisa has decided to use her salespeople to encourage wholesale adoption, and salespeople will be paid a full 10% commission on the manufacturer's (i.e. Lisa's) selling price. The salary of the product manager is $65,000.

After conducting an extensive market sizing study, Lisa's best guess is that it will probably sell 82,000 cases in its first year. This projection is based on the price, advertising and sales support listed above. Lisa is considering a few possible changes to her marketing plan to try to push her sales above the baseline of 82,000.

1. How much profit will Lisa's company make if it sells 82,000 cases?

Strategy 1: Increasing advertising spending

2. If Lisa doubles her advertising budget, calculate the total sales volume (in units) needed to maintain the current estimated profit (#4).

Strategy 2: Lowering the price

3. If Lisa lowers the wholesalers' price to $12.00, calculate the total sales volume (in units) needed to maintain the current estimated profit (#4).

Strategy 3: Increasing the sales commission

4. If Lisa raises the sales force's commission to 15%, calculate the total sales volume (in units) needed to maintain the current estimated profit (#4).

Answer rating: 100% (QA)

Calculation of Manufacturing price Final Price to cunsumer 3999 19995 Retailer price margin 50 2666 ... View the full answer