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

Here, the total profit should be 0

Total profit = quanity*profit margin – promotional expenses

Let quantity = x

50% sales through university store channel.

Profit margin of university store channel = 8.00

Total profit = 0.5*x*8 = 4*x

25% through department store channel

Profit margin of department store channel = 0.5

Total profit = 0.25*x*0.5 = 0.125*x

25% through online discount retailer.

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 = 4.875*x

4.875*x – 6400 = 0

4.875*x = 6400

x = 6400/4.875 = 1312.82

Answer is: 1313

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