-USE EXCEL

your manager has expressed some concern regarding the inputs that you utilized

INPUTS

The annual demand of 100 units

Average order size of 10 units

Average selling price is $10.00

Average material cost is $8.50

The average profit per unit sold is $1.50

Fixed shipping cost is $5.00

Variable shipping cost is $1.00

-The total market size = 100 million customers

-Landed Cost $11.50

The external consulting firm has estimated that the number of customers are a function of price:

Number of Customers = Total Market Size x exp( exponential factor*Landed Cost)

The total market size = 100 million customers and the landed cost is the total unit cost for the customer, including the price of the product and shipping costs.

For example, the landed cost to the customer is the purchase price ($10) plus the transportation cost ($5 per order plus $1 per unit.)

So, If I order 10 units, the landed cost is: Total Cost/number of units = ((10*$10.00)+$5.00+(10*$1.00))/10=$11.50

For all of the inputs in the model, how do changes in each input impact profitability? Why?

Discuss how and why each of these inputs is likely to change and examine how sensitive the model is to changes to the inputs.

Which of these inputs are critical to the profitability of the business?