Question

you will assume your MSRP is always $50.00.

Assumptions:

• Product: Construct a backpack with these product characteristics – square shape, wide + chest straps, no additional features, and eco-friendly material. Your color is not important. Your production cost should always be $27.00
• Promotion: Cost is $6,400
• University Students as the Target Segment

- Online Retail store

Retail Price:37.50

Your MSRP:50.00

Distributor Cut:20.00 (40%)

Production Cost:27.00

Promotion Cost:0.00

- Department Store

Retail Price:45.00

Your MSRP:50.00

Distributor Cut:22.50 (45%)

Production Cost:27.00

Promotion Cost:0.00

Profit Margin:0.50

- University Store

Retail Price:50.00

Your MSRP:50.00

Distributor Cut:15.00 (31%)

Production Cost:27.00

Promotion Cost:0.00

Profit Margin:8.00

Now assume we sell through all three channels and our total promotion expenses are $6,400. If we assume we consistently sell 50% of our total units sold through the University Store channel, and 25% through the Department Store channel, and 25% through the Online Discount Retailer, what is our Break-even volume, in units?

1,313

4,134

4,467

None of the above

Answer 1

Answer:

Given that,

You will assume your MSRP is always $ 50.00.

Assumptions:

• Product: Construct a backpack with these product characteristics – square shape, wide + chest straps, no additional features, and eco-friendly material. Your color is not important. Your production cost should always be $27.00
• Promotion: Cost is $6,400
• University Students as the Target Segment

Online Retail store:

Retail Price: 37.50

Your MSRP: 50.00

Distributor Cut: 20.00 (40%)

Production Cost: 27.00

Promotion Cost: 0.00

Department Store:

Retail Price: 45.00

Your MSRP: 50.00

Distributor Cut: 22.50 (45%)

Production Cost: 27.00

Promotion Cost: 0.00

Profit Margin: 0.50

University Store:

Retail Price: 50.00

Your MSRP: 50.00

Distributor Cut: 15.00 (31%)

Production Cost: 27.00

Promotion Cost: 0.00

Profit Margin: 8.00

Now assume we sell through all three channels and our total promotion expenses are $ 6,400.

If we assume we consistently sell 50% of our total units sold through the University Store channel, and 25% through the Department Store channel, and 25% through the Online Discount Retailer,

What is our Break-even volume, in units:

Here, the total profit should be 0.

Total profit = Quantity Profit Margin - Promotional experises

Let quantity = x

50% of sales through the university store channel.

The profit margin of university store channel=8.00

Total profit= 0.5 x 8

=4x

25% through department store channel.

The profit margin of department store channel=0.5.

Total profit= 0.25 x 0.5

=0.125x

25% through online discount retailer.

The profit margin of online discount retailer=3.00

Total profit=0.25 x 3

=0.75x

Total profit of all channels= 4 x+0.125 x+0.75 x

=4.875x

4.875x-6400=0

x=6400/4.875

=1312.82

=1313 (approximately)

Answer: Option(A)