Production and Cost Information: Rapha must significantly modify its existing production

facilities to manufacture the Signature Shorts. The production facility modification and

equipment costs are estimated at $$3,250,000,$ and the company requires $$650,000$ for general

overhead expenses. Mark estimates that he will need to spend $$1,650,000$ on advertising to

promote the Rapha Signature Shorts in the first year to help spread the word for this new

product. Mark expects $15\%$ of the retail price to go for labor costs, $3\mathrm{.}5\%$ for raw material and

packaging expenses, while $4\%$ will be for miscellaneous operating costs, and $0\mathrm{.}5\%$ for

transportation expenses. Finally, Mark decides to sell the Rapha Signature Shorts through a

wholesaler rather than directly to retailers. The wholesaler expects contribution margins of

$40\%,$ while retailers demand $35\%$ contribution margins on cycling shorts.