Problems related to Price setting, Chapter 18 is attached.
Here is the guidance for preparation before solving the problems in the attached.
1. Review and study Chapter 18 text. especially the topics on Cost based pricing and Break-even analysis
2. Watch the Video ppt recording for chapter 18 under Course Learning resources.
3. Note down the Formulas to be used. Do some practice questions which will be provided soon.
4. Finally, solve the problems, and type the answers, displaying all the steps to arriving at the answer. (no scribbles please)
5. Submit as a Word document.
1. An appliance retailer purchased a small vacuum cleaner for $38.00. He plans to add a 45% markup and resell. What will be the retail selling price for the vacuum cleaner? (2 pts)
2. If a retailer sells an oriental vase for $210.99. What was his markup if he bought the vase for $122.00 from the wholesaler (Value 3 pts)
· Markup in actual dollars ________
· Markup (as a % of cost price) ________
· Markup (as a % of selling price) ________
According to our textbook, typically, wholesalers and retailers use markup which is expressed as a % of ____________ for convenience.
Select the correct choice:
A cost price B. selling price
3. Walgreens offers Centrum Vitamins for 14.99 per Bottle (for 150 tablets). Occasionally, Walgreens promotes Centrum with a “buy two, get the third bottle for free” type of promotion. When a consumer participates in this promotion, what is the actual price per bottle for Centrum during the promotion? __________________ (2 pts)
4. Kotler Bathroom product manufacturer just produced a low flush toilet which saves over 50% on water use per flush of the toilet. Kotler will make it available with merchant wholesalers for $97.00. The company expects its wholesalers and retailers to follow its recommended markup chain percentages where wholesalers take a 25% markup and retailers take a 40% markup. What does Kotler expect the final consumers to pay for this product at retail stores? ___________________ (8 pts)
4. John Fleming, marketing manager for the Athletic Sporting Goods Company (ASGC) is thinking about how the changes taking place among retailers in his channel might impact his strategy. The ASGC is a producer of different lines of sports products. John is looking for alternative ways to make money.
John Fleming is considering a new strategy to increase sales of tennis balls and new tennis racquets.
a. The basic idea for ASGC is to sell tennis balls in large quantities to nonprofit groups who resell the balls to raise money.
For example, a service organization at a local college bought 2,500 tennis balls printed with the college logo. The company charged $.50 each for the tennis balls-plus a $800 one-time charge for the stamp to print the logo. The service group plans to resell the tennis balls for $2.50 each and contribute the profits to a shelter for the homeless.
Questions based on the above. (5 pts) 5. What is the service organization's average cost per printed Tennis Ball?
6. What is the total profit the service group hopes to make and contribute to the Shelter if it sells all 2500 tennis balls at $2.50 per ball?
b. ASGC is also considering adding tennis racquets to the product lines it produces.
This would require a $500,000 modification to its factory as well as the purchase of new equipment that costs $1,600,000. The variable cost to produce a tennis racquet would be $55, but John thinks that ASGC could sell the racquet at a wholesale price of $82.
John thinks that if ASGC sells the racquet at a lower price, many other retailers might decide to carry it. However, the vice president of ASGC thinks that the tennis racquet is a superior product and that ASGC should sell it for $99.99 to upscale country clubs only. The higher price would give a prestige image.
Questions based on the above (10 pts)
7. If ASGC produces tennis racquets, how many racquets must it sell at $82.00 and $99.99 to break even?
· Breakeven units at 82.00 _______________________________. (3pts)
· Breakeven units at 99.99 _______________________________. (3pts)
· Which price do you recommend and why? __________________________ (2pts)
· If ASGC wants to make at least $40,000 profit off the racquets, at a selling price of $82.00 what would the breakeven quantity be__________________________ (2pts)
9. Yoplait has new line of Greek yogurt in a 9 oz size. The Marketing Managers plan to test market the product in one small market for three weeks. They calculated the cost and projected sales for each of the different flavors:
Plain cost is .55 each with the projected sales of 15,000 units, Strawberry cost per unit is .70 with the projected sales of 18,000 units, Blueberry cost are .78 per unit with the projected sales of 12,000 units.
Each yogurt product will retail at the same price. Using the average cost and a 40% markup, what will Yoplait price the 9 oz. Greek Yogurt at the retail level?
Ans. ______________ 10 pts.
Operating Expenses as a % of sales Profit Margin as a % of sales Mark Up %
Small drugstores 36% 1% ?
Supermarkets 25% 2% ?
Mass-merchandisers 27% 2% ?
Merchant wholesalers 10% 2% ?
There are few Methods for setting pricing – costs methods vs demand methods
Formulas considering costs and mark up will help you to do the Problem set assignment:
1. Markup for setting prices (Mark up $ = SP-CP); MARK UP % = (MU $/SP) X100)
Formula for setting price with the markup method
SP = Cost/(1- Markup %)
Example – retailer buys A hat for $15 and wants a 40% markup, his selling price would be….
SP = 15/(1-.40)=.60
2. Understand Role of different costs – fixed, variable, total costs and average costs
3. What is the breakeven point? Formula for calculating the Break Even point.
BE = Total Fixed Cost/Fixed cost contribution
Fixed Cost Contribution=Price – variable cost
4. Average Cost = when there are many flavors/types of the same product, producer determines average cost and then add the mark up to set a common selling price.
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