WSM Enterprises introduced the Wizkid in 1991 to compete with Action Man. Although the peak demand for these products occurred several years ago, sales have stabilized and WSM sells 15,000 Wizkids a year. The recommended retail price is £24.99 and the current wholesale price is £10.00. However, the managing director wishes to increase the return on this product and has proposed a 100% mark-up on total variable costs. WSM has an annual output of 15,000 Wizkids. The fixed costs related to this product are £40,000 and the variable (or marginal) costs are £6.00 per unit.

Tasks:
1.  What is the break-even volume of this product if a selling price of £10.00 is charged? What is the profit at this price?
2.  What price would the MD like to charge? What would the resulting net profit be if there were no change in demand?
3.  The marketing director has forecast a 10% drop in orders if the price is raised as suggested. What would WSM’s profit be if this were to happen?
4.  Discuss the other factors the MD should take into account when deciding on the selling price of Wizkids.