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Litwick is a company that sells light bulbs with LED technology. The following is their typical income and costs. Sales Retailer price 4,000 units
Litwick is a company that sells light bulbs with LED technology. The following is their typical income and costs. Sales Retailer price 4,000 units $10.00 per unit Variable costs Fixed costs $6.00 per unit $15,000 Litwick management wants to partner with a wholesaler that guarantee they can sell better than if Litwick handles the distribution. The wholesaler is optimist that they can sell even up to 6,000 unit. However, they want a wholesaler margin of 20%. It means, Litwick has to sell it at $8.00 to the wholesaler. a.Determine whether the offer from the wholesaler is a good deal by calculating the break-even sales change. What is the expected new contribution should Litwick accepts the offer? b.Meanwhile, Litwick's management is negotiating with a new supplier for a cheaper material. The supplier agrees to give a better price such that the variable cost becomes $5.00/ unit. Compare this situation with the previous one (in a). Will your recommendation be changed now? What is the expected new contribution should Litwick accepts the offer? c.Blitzle, a new entrant in the light bulb business, introduced its own light bulb to the market. Blitzle's retail price is $9.00 per unit. Given the market is quite price sensitive, Litwick management predicts that the company may lose 20% of its sale if it keeps its current retail price at $10.00. How should Litwick react to Blitzle's price? Should Litwick match Blitzle's retail price?
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