Tupelo Sewing Machines Company (TSMC), located in Tupelo, MS, manufactures a variety of industrial products. In 2020, the company is planning to introduce a line of electronic industrial sewing machines. Their VP of Marketing, Karen Gardial is reviewing the proposed TSMC promotional plan for the new product. Industry sales of such sewing machines in TSMC’s market area are estimated to be about 14,000 units in 2019 and are anticipated to be about 10% higher in 2020. With four other competitors in the same market, TSMC is hoping to capture about 20% of the market in the first year.

TSMC markets three sewing machine models: Model numbers Alpha, Beta, and Delta which retail for $800, $900 and $1,000, respectively. Model Alpha accounts for 35% of the TSMC unit sales volume, while Model Beta accounts for 50% and Model Delta accounts for the remaining 15% of unit volume.

TSMC charges the TSMC Division an annual production set-up charge of $140,000 to manufacture the machines; the material and labor costs per machine Model Alpha are $70 and $60 respectively. These are $100 and $90 for Model Beta, and $120 and $140 for Model Delta. Shipping and packing expenses are about $32.00 per machine regardless of model.

TSMC proposes to market its sewing machines to wholesalers who markup 20% on retailer purchase price and then sell to retail dealers who markup 40% on wholesaler selling price. The TSMC sewing machine sales force will consist of 6 individuals at an annual salary of $40,000 each, plus a 4% commission on their sales to wholesalers. Each salesperson will also incur about $24,000 per year in travel expenses. The 2020 advertising budget is $160,000, while 5,000 product brochures will be printed at a cost of $10 each and provided to key wholesalers and retailers. Karen estimates that her salary for 2020 will be approximately $84,000.

Karen Gardial wishes to assess the relative feasibility of three different TSMC profit goals for 2020. First a profit of $500,000. Second, a 25% return on $1.6 million invested. Third, a 15% profit on all sales. You have been called in to help with this analysis. 

Q1. What is the weighted average retail selling price of a machine? Using this, calculate the wholesaler’s selling price of a machine and TSMC’s selling price of a machine.

Q2. Starting with the weighted retail selling price of a machine, calculate TSMC’s selling price of a machine using the bottom-up markup chain.

Q3. Line-itemize the components of the Unit Variable Cost of a TSMC machine. Please note that some components of the UVC are different for the various models and therefore must be weighted. Total these components to calculate the UVC of a machine.

Q4. What is TSMC’s $C and %C of a machine?

Q5. Line-itemize and then total these to estimate the TSMC Total Fixed Cost for 2020?

Q6. What is TSMC’s #BEP and $BEP for 2020? (must use =roundup for #BEP and calculate $BEP as #BEP*USP of TSMC)

Q7. Calculate the #RLS and $RLS for the dollar profit goal (must use =roundup for #RLS and calculate $RLS as #RLS*USP of TSMC).

Q8. Calculate the #RLS and $RLS for the %ROI goal (must use =roundup for #RLS and calculate $RLS as #RLS*USP of TSMC).

Q9. Calculate the #RLS and $RLS for the %Profit on Sales goal (must use =roundup for #RLS and calculate $RLS as #RLS*USP of TSMC).

Q10. What is the 2020 size of the total market in units? Therefore, what is the % market share in units for achieving the TSMC #BEP and the #RLS for each of the three profit goals?

Answer rating: 100% (QA)

A1 The weighted average retail selling price of a machine is 800 The wholesalers selling price of a ... View the full answer