Pricing Problem Set – Spring 2022Wednesday 10:00 AM Class
Instructions: Before starting, review the definitions of markup, average-cost pricing, break-even point (BEP), fixed vs. variable costs and fixed-cost contribution per unit in Chapter 18. Remember that markup is stated as a % of the final selling price (not of the cost). See the formula in Appendix B under Markups. You must show how you calculated the answers for each problem. If you do not show your calculations, you will not get credit. Upload your calculations and answers as a Word, text, PDF, or JPEG file (handwritten is acceptable).
Question 1: A gardening retail store sells a fertilizer spreader to customers for $39.99. The retailer bought the spreaders for $21 each from the wholesaler. Calculate the following:
What is the markup in actual dollars? (3 pts) _________ What is the markup as a % of selling price? (4 pts) _________
Question 2: A party supply retail store purchased 10×20 ft. canvas party tents from a wholesaler for $93 each. The store manager plans to take a 41% markup. What will the selling price be to the customer? (7 pts) _________
Question 3: US-based CamTech has been making security video cameras for the commercial market. The smart home security camera market in the U.S. is projected to have a compound annual growth rate of 15% for the next several years, so they are considering a home security camera that is water resistant, compatible with Alexa and Google Assistant, and wired or wireless in operation. Some other cameras offer these features. To differentiate, they plan to support both 2.4g and 5g (most support only 2.4g) and allow buyers to use their own cloud storage for videos (most charge a monthly fee for cloud storage). Cameras without these features retail for $60-95, and they think people may be willing to pay more for this one. It will require $395,000 in fixed costs for a new production line, and the variable cost per unit will be $45.00. Management wants to determine the price it should charge to retailers. What is the
break-even point (BEP) in units at each of these three prices to retailers? (9 pts/3 each) BEP units at $55.50 BEP units at $60.50 BEP units at $65.50
If you were their marketing manager, which price would you choose and why (keeping in mind that retailers will take an additional markup)? (3 pts) ___________________________________
Question 4: SmartTek is adding a new juicer to its home appliance product mix. To implement the new juicer, the firm will have a fixed cost of $225,000, and the selling price direct to consumers will be $75.99 with a variable cost of $47.00 per unit. They want to make at least $120,000 in profit the first year with this new product. How many juicers do they have to sell to reach this profit goal? (7 pts) _____________
Question 5: VitaLean plans to test market a new line of 2-oz gluten-free protein/fiber bars in three flavors. They have calculated the cost and projected sales for each. The blueberry cost per unit is .80 with projected sales of 20,000 units. The peanut cost per unit is .87 with projected sales of 24,000 units. The vanilla cost per unit is .76 with projected sales of 18,000 units. Each bar will retail at the same price.
Using the average-cost pricing method for the three flavors and a 45% markup, what will the VitaLean retail price be to customers? (7 pts) _______________
