Question

You are the marketing manager of a 100-year-old organization called "Cannuck Ltd" who manufactures a wide variety of sporting goods ranging from precision manufactured rugby balls to sports clothes and accessories. Currently, you are developing the marketing plan for one particular rugby ball, which exploits latest developments in manufacturing technology. This plan focuses on a new market for the organization - namely France. There is intense competition in the rugby ball market for distribution space in sports retailers. Consequently, you are planning to devote significant promotional spend to advertising and sales promotion to generate awareness of the new rugby ball among retailers and the rugby sporting community. You accept that the introduction costs will be high, but you are also aware that potential financial returns are also high. The size of the market is 17,000 units.

Each box of balls (or unit), costs $28 to manufacture, and will retail at $200 in France. In addition, the raw material cost $15 to Cannuck Ltd. The retailer retains a 20% margin (of the retail price). The plan is to ship the balls to a large sports wholesaler who then distribute to large sports retailers in the main urban areas (total freight / documentation costs get an estimate of $36 per box/unit). The wholesaler retains a margin equivalence of 20% of the retail price.

"Cannuck Ltd" has decided to allocate $20000 for trade magazine advertising directed to the sports wholesalers. There are also two sports goods trade shows, which the organization plans to attend so that it can use point-of-sale material to generate awareness of the new rugby ball among sports retails. Each trade show costs $3000. In addition to this, you are planning to instigate a direct mail campaign targeted at the 1500 sports retailers throughout France. Each direct mail piece to retailers will cost $1.50.

End-user advertising has also been budgeted at $30000. A part-time agent has also been appointed (salary = $30,400) and this individual earns $11 for each box of balls sold to the sports wholesalers.

Questions:

1. What required level of sales (RLS) in units and dollar sales (revenue) required to

   achieve a target profit of $36,000? (ONE PAGE MAXIMUM)

Answer 1

SOLUTION:-

From the given problem we are required to calculate:

(a) Required level of sales (RLS) in units & dollar sales (revenue) required to achive a target profit of $36000.

Estimated cost statement per ball (unit)

Give that retail price of product per unit = $ 200

cost of raw materials = $ 15

cost of manufacturing = $ 28

Freight / documentation charges = $ 36

Surplus before commission per unit

= 200 - 15 -28- 36

= 200 - 79

= $ 121

Commission to wholesaler (20% on $200)

= 20% $200

= $ 40

Commission to retailer ( 20% on $200)

= 20% $200

= $ 40

  

Commission to part time agent = $11

Maxgin earned per unit as per etimation

= $ 121 - $40 - $40 - $11

= $121 - $91

= $ 30

Calculation of desired sales (units):

advertisement cost directed to whole salers = $ 20,000

advertisement cost realated to two trade shows = 2 $3000

= $ 6000

advertisement through mail to 1500 retailers = 1500 $1.5

= $ 2250

End user adevertisement cost = $30,000

Salary to part time agent = $30,400

Total cost of operating bussiness :

= $20000 + $6000 + $2250 + $30000 + $ 30400

= $88650

desired profit to be achived = $3600

Total value to be earned to achive the target sales :

= $88650 + $36000

= $124650

Required level of sales (RLS)

= target sale value / margin per unit

= $124650 / 30

= 4155 units

Required revenue to be earned

= 4155 $200

= $ 813000

  

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