The managing director of the firm has asked you to investigate products in various categories. The products will be sourced in China, shipped to the US and sold via Amazon.com.

The suppliers of the various products quote you an EXW price in USD$ per item.

The products will be shipped via air. The shipping cost per item according to the larger of shipping weight (in kg) or volume weight (volume weight in kg). Volume weight (kg) = Length (in cm) x Height (in cm) x Width (in cm) / 5000

Your logistics partner has offered you to ship products from China to the US at a rate of US$5.3/kg.

Depending on the category – Amazon takes a certain referral fee (% of the sales price). Please refer to appendix A for a table of the Amazon referral fees. Depending on the size and/or weight of the product packaging the company incurs cost to send the items from the US warehouse to the end customer. Appendix B includes a table showing the fulfilment cost in relation to the weight or volume weight of the item.

The company aims to make at least 40% profit on products that it manufactures itself and at least 30% on items that the firm merely sources.

Please answer the numerical parts of the below questions using a well-organised Excel spreadsheet. Submit the answers in email form to your managing director and attach the spreadsheet.

1. Your company produces its own unique camera accessories. There is very little competition in that particular niche market and the company knows that it will be able to sell the items for US$39.99 on Amazon. The below table shows you the EXW price, dimensions and weight of three items.

a. Order the three products by profitability starting from lowest to highest! What are the expected margins?

b. Which product should the company produce and why?

c. Sometimes customers return products for a refund. When a customer returns a product, the whole transaction gets reversed – BUT Amazon keeps 20% of the referral fee, the fulfilment fees are non-refundable and the product is NOT re-sellable. Assuming return rates 3%, 9% and 5% for products A,B and C respectively, how does this impact your answer to the above questions?

 
 

Transcribed Image Text:

Product Camera Accessory A Camera Accessory B Camera Accessory C C. Length (cm) Height (cm) Width (cm) Weight (kg) EXW Price (US$) 15 18 0.2 7.00 9 9 0.15 15.50 12 12 0.2 13.00 19 9 11 Sometimes customers return products for a refund. When a customer returns a product, the whole transaction gets reversed - BUT Amazon keeps 20% of the referral fee, the fulfilment fees are non-refundable and the product is NOT re- sellable. Assuming return rates 3%, 9% and 5% for products A, B and C respectively, how does this impact your answer to the above questions? Product Camera Accessory A Camera Accessory B Camera Accessory C C. Length (cm) Height (cm) Width (cm) Weight (kg) EXW Price (US$) 15 18 0.2 7.00 9 9 0.15 15.50 12 12 0.2 13.00 19 9 11 Sometimes customers return products for a refund. When a customer returns a product, the whole transaction gets reversed - BUT Amazon keeps 20% of the referral fee, the fulfilment fees are non-refundable and the product is NOT re- sellable. Assuming return rates 3%, 9% and 5% for products A, B and C respectively, how does this impact your answer to the above questions?

Answer rating: 100% (QA)

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