Question

What will the profit be if they sell 2,000 units at $349 retail price? And what will be the profit if the Parker merger reduces costs as projected and they again sell 2,000 units? How important is it that the company's retailers and dealers are on board with it's pricing strategy?

Rent and Taxes $14,000

Depreciation of Equipment $4,000

Management and Quality Control $20,000

Variable cost for each unit:

Direct Materials $45/unit

Using specific examples of products or services from this case or others your familiar with:  compare and contrast skimming, penetration, prestige, bundle and loss-leader pricing.

Direct Labor 15 hours/unit @$8/hour

Please show your work

Answer 1

Units Sold MSRP Revenue

2,000 x $349 = $ 698,000 (2,000 x $349)

TC before Merger TC After Merger

Rent & Taxes $ 14,000 , $ 8,400 (due to 40% decrease)

Deprec. Of Equip $ 4,000 , $ 4,000

Mgmt $ 20,000 , $ 20,000

Dir. Mat $ 45/unit = $ 90,000 , $ 90,000

Dir. Labor = 15 x 2000 = 30000 hours x 8 = $ 2,40,000

$240,000 , $204,000 (15% decrease)

Total Costs = 14000+4000+20000+90000+240000 , 8400+4000+20000+90000+204000

= $ 368,000 , $ 326,400

Revenue Cost Profit

Before Merger: $698,000 – $368,000 = $ 330,000

After Merger: $698,000 – $326,400 = $ 371,600