Many luxury sheets cost less than $200 to make but sell for more than $500 in retail stores. Some cost even more-consumers pay almost $3,000 for Frett'e "TangeriPizzo" king-size luxury linens. The creators of a new brand of luxury linens, called Boll & Branch, have entered this market and are determining the price at which to sell their sheets directly to consumers online. They want to price their sheets lower than most brands but still want to earn an adequate margin on sales. The sheets come in a luxurious box that can be reused to store lingerie, jewelry, or other keepsakes. The Boll & Branch brand touts fair trade practices when sourcing its high-grade long-staple organic cotton from India. Given the cost information below, refer to Appendix 2: Marketing by the Numbers to answer the following questions.
Cost/King-size Set
Raw Cotton..................................................................$28.00
Spinning/Weaving/Dyeing.................................................$12.00
Cut/Sew/Finishing...........................................................$10.00
Material Transportation.....................................................$ 3.00
Factory Fee...................................................................$16.00
Inspection and Import Fees................................................$14.00
Ocean Freight/Insurance.....................................................$ 5.00
Warehousing..................................................................$ 8.00
Packaging.....................................................................$15.00
Promotion.....................................................................$30.00
Customer Shipping...........................................................$15.00
1. Given the cost per king-size sheet set above, and assuming the manufacturer has total fixed costs of $500,000 and estimates first year sales will be 50,000 sets, determine the price to consumers if the company desires a 40 percent margin on sales.
2. If the company decides to sell through retailers instead of directly to consumers online, to maintain the consumer price you calculated in the previous question, at what price must it sell the product to a wholesaler who then sells it to retailers? Assume wholesalers desire a 10 percent margin and retailers get a 20 percent margin, both based on their respective selling prices.