MARKETING PROBLEMS Set 2

The exercises below are intended to provide practice in the typical

arithmetic challenges faced by marketers. Accordingly, please focus on
the numerical analysis required, disregarding the shortage of other
information that one would wish before making final decisions.
EXERCISE 1
A ballpoint pen manufacturer had the following information:
Plastic tubes: top and tip
Ink
Direct Labor
Selling Price
Advertising
Managerial and secretarial salaries
Salespeople's commissions Factory
price
overhead

.15 per unit

.03 per unit
.03 per unit
.40 per unit
$80,000
$200,000
10 per cent of selling
$120,000

Total available ballpoint pen market is 10 million pens (near this selling
price).
Calculate:
a. unit contribution
b. break-even volume in units
c. share of total market to break even
d. total profit for the company if three million pens are sold
e. volume in units required to generate $500,000 profit.
EXERCISE 2
Jones Toy Store sells toys purchased from a wholesaler who buys them
from a manufacturer. The wholesaler gets a 25 per cent margin on its
selling price and Jones gets 35 per cent markup on cost. If the
manufacturer sells a toy for $5, what is Jones' selling price to
consumers?
$9.1125
http://en.wikipedia.org/wiki/Markup_(business)
EXERCISE 3
Leaven's Box & Label is evaluating the feasibility of manufacturing a
new product. The plant it owns has a capacity to produce one million
units of the product. Fixed costs associated with this product are
$2,000,000 and the maximum selling price that the market will tolerate

is $10 a unit. If variable costs are 80 per cent of selling price, should
Leavens pursue its idea and do further market analysis?
EXERCISE 4
Using the following information, calculate unit contribution:
a. Advertising = $50,000
b. Break-Even Sales Revenue = $450,000
c. Salaries = $45,000
d. Selling Price = $3.25 per unit
e. Overhead = $60,000
EXERCISE 5
Last year, consumers spent $1,200,000 on products similar to one
called Wipe-it-Clean. Wipe-it-Clean costs a retailer $2.25 and normal
retail margins are 30 per cent for this kind of product. The
manufacturer of Wipe-it-Clean is about to launch a nation-wide
advertising campaign which will bring its fixed costs up to $200,000.
Wholesaler margins are 25 per cent and manufacturer margins are 60
per cent. Margins are calculated as the percentage of each company's
own selling price. What market share must Wipe-it-Clean capture for
the manufacturer to break even? What market share must Wipe-itClean capture for the manufacturer to achieve a profit of $150,000?
EXERCISE 6
The manufacturing costs, all variable, for a product are $1.75 per unit.
Wholesaler margins are 50 per cent and retailer margins are 75 per
cent (both calculated as a percentage of their respective selling
prices). The manufacturer wants to make a minimum of $100,000
profit over and above fixed costs of $50,000. What will be the
minimum retail selling price if the manufacturer produces only 10,000
units?
EXERCISE 7
Richard Miller was preparing a new product analysis for Brand A. Based
on his market research his decision was to sell at $10 retail. Retailers
customarily expected a 35 per cent margin and wholesalers a 25 per
cent margin (both expressed as a percentage of their selling price).
Brand A's variable costs were $2/unit and estimated total fixed costs
were $28,000. At an anticipated sales volume of9,000 units, would
Richard's Brand A make a profit?
EXERCISE 8
Brilliance Toothpaste sells at retail for $1.75 per tube. The
manufacturing cost is $0.30 per tube and the fixed costs total $20,000.
The manufacturer's margin is 50 per cent and the retailer's margin is
33 per cent. All margins are calculated on selling prices. On sales of

200,000 units, calculate the manufacturer's profit, the wholesaler's

margin, and the retailer's margin.
EXERCISE 9
Joe needed a job to at least cover his university tuition next year. Acme
Vacuum Company would hire him to sell its vacuum cleaners on a doorto-door basis. The company estimated that Joe's variable cost per sale
(which included paying Acme for the vacuums) would amount to
approximately 60 per cent of the selling price of the cleaners. Joe's
fixed costs for the summer (including his apartment rent and spending
money) would amount to $2,500. Joe figured that he needed $4,500 to
cover tuition next year. Acme estimated that a keen salesperson could
sell $15,000 at retail of vacuum cleaners in a four-month period. Joe
knew that he could return instead to his old summer job in a factory.
Although his salary would be assured at this factory job, Joe
understood he would be able to save only $3,500 for his schooling.
Which job should Joe take? What factors did you consider when making
your decision?
EXERCISE 10
A children's puzzle costs $3.50 to manufacture. Manufacturer margins
are 30 per cent, wholesaler margins 15 per cent and retailer margins
50 per cent (all calculated as a percentage of their respective selling
prices). What price would this mean for consumers in the stores?