Question

Washburn Guitars

The modern Washburn Guitars Company started in 1977 when a small Chicago firm bought the century-old Washburn brand name and a small inventory of guitars, parts, and promotional supplies. At that time, annual company sales of about 2,500 guitars generated revenues of $300,000. Washburn's first catalog, appearing in 1978, told a frightening truth:

"Our designs are translated by Japan's most experienced craftsmen, assuring the consistent quality and craftsmanship for which they are known. At that time, the American guitar-making craft was at an all-time low. Guitars made by Japanese firms, such as Ibanez and Yamaha, were in use by an increasing number of professionals."

"We offer a guitar at every price point for every skill level," explains Kevin Lello, vice president of marketing at Washburn Guitars. Washburn is one of the most prestigious guitar manufacturers in the world, offering instruments that range from one-of-a-kind, custom-made acoustic and electric guitars and basses to less-expensive, mass-produced guitars.

Lello has responsibility for marketing Washburn's products and ensuring that the price of each product matches the company's objectives related to sales, profit, and market share. "We do pay attention to break-even points," adds Lello. "We need to know exactly how much a guitar costs us, and how much the overhead is for each guitar."

With that statement in mind, watch the video describing how Washburn prices its guitars and how it uses the pricing variable as a strategic tool for positioning its various guitars in the market place.

1. If Washburn Guitars were to lower the price of the Maya Pro DD75 to $2,499 from $2,699, sales of the guitar would increase 30%. This illustrates

an increase in the unit variable cost.

A. a product with inelastic demand.

B. a product with elastic demand.

C. a shift in the demand curve.

2. Washburn Guitars makes signature series guitars to enhance the credibility of the Washburn brand. Creating signature series guitars would have a positive effect on all of the following except:

A. demand

B. brand awareness

C. brand loyalty

D. unit variable cost

3. If the mass-produced guitar sells 100,000 units annually at $175 per guitar, what is the total revenue?

A. $1,750,000

B. $175,000

C. $17,500,000

D. $6,175,000

4. Washburn has four distinct price points for its guitar lines: entry, intermediate, professional, and collectors based on the fact that each line has very different production costs, market demand, and sales level. Thus, Washburn has implemented a _______ pricing objective.

A. unit volume

B. survival

C. market share

D. social responsibility

5. Washburn’s fixed costs for producing mass-produced guitars are $500,000. Its variable costs are $150 per guitar. If it prices these guitars at $250, what is the break-even quantity for this line?

A. 2,500 guitars

B. 1,500 guitars

C. 1,000 guitars

5,000 guitars

6.With the typical downward sloping demand curve like the one shown for Washburn, as price per unit falls, demand

A. remains unchanged.

B. increases.

C. decreases.

C. is minimized.

7. If employees of Washburn guitars want to travel to Asia to meet with guitar craftspeople, what is the best choice of who to send if diversity is considered a primary factor in the visit?

A. A team of the most senior executives in the company

B. A team compromised of a diverse group of gender and race

C. A team compromised of a diverse group of gender, race, sexual orientation, economic backgrounds, educational attaintment and generational differences.

D. It should be a random selection

Answer 1

1. Option B

If demand is elastic at a given price level, then should a company cut its price, the percentage drop in price will result in an even larger percentage increase in the quantity sold—thus raising total revenue.

2.Option D

The unit variable cost is simply the variable cost per unit produced. It is the extra cost incurred by producing each additional unit. Signature series will add to the brand value of the product and has nothing to do with variable cost.

3. Option C

Revenue = Price * Quantity = $175 * $100000 = $17500000

4. Option A

In case of unit volume pricing objective The quantity is produced or sold. Sell multiple products at very different prices and need to match the unit volume demanded by customers with price and production capacity.

5.Option D

Breakeven = Fixed Costs / Selling Price - Variable Cost

= 500000/250 - 150 = 5000

6.Option B

As per law of demand other things remaining constant with decrease in price demand increases and with increase in price demand decreases.

7.Option C

Considering diversity as a factor a team compromised of a diverse group of gender, race, sexual orientation, economic backgrounds, educational attaintment and generational differences will display Diversity on a large scale and on different parameters.