Question

S2 Margin Analysis. If a six-pack of a fruit-soda sells for $6 retail and the retailer's margin is 25% and the wholesaler-distributor margin is 33% then what is the manufacturer's price?

2- Price Setting Analysis. The Eco-spout entrepreneur wishes to pay himself and his son $25,000 each. He also plans $20,000 in extra fixed selling costs and a decrease in estimated variable sales costs from 10 cents down to five cents a unit. What is the new target share of reached market needed in the first year?

3 He also is able to get a better average variable manufacturing cost of 25 cents per unit and not 40 cents. He also decides to sell the unit wholesale for $0.99 and not $0.90. What is the new target share of reached market needed in the first year?

Answer 1

Answer to Question Number 1

Retail price = $6

Retailer Margin = 25%

Therefore, Retailer profit = $6 * 25% = $1.50

Hence, Cost to Retailer = $6 - $1.50 = $4.50, this will be the sale price of wholesaler distributor

Now, Wholesaler distributor margin = 33%

Therefore, Wholesaler profit = $4.50 * 33% = $1.485

Hence, cost to wholesaler distributor = $4.50 - $1.485 = $3.015, this will be manufacturer's price.

Answer to Question Number 2

Payment to himself = $25,000

Payment to Son = $25,000

Extra fixed selling cost = $20,000

Therefore, total extra fixed expenses = $70,000

Now, there is a decrease in variable sales cost from 10 cents to 5 cents, meaning a reduction of $0.05 per unit.

Therefore, new target share of reached market needed will be = Total extra fixed expenses/saving in variable cost per unit

= $70,000/0.05 per unit

= 1,400,000 units

Answer to Question Number 3

Total fixed expense = $70,000

New sale price per unit = $0.99

New Variable cost per unit = $0.25

Therefore, new contribution per unit will be = $0.99 - $0.25 = $0.74

Hence new target share of market will be = Fixed cost/contribution per unit

= $70,000/$0.74 per unit

= 94,595 units