Watch the video/read material on Blackboard and book around pricing and then answer the following questions (please TYPE answers).
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 its pricing strategy?
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Units Sold MSRP Revenue
2,000 $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 $25/unit $ 50,000 $ 50,000
Dir. Labor $240,000 $204,000 (15% decrease)
Total Costs $328,000 $286,400
Revenue Cost Profit
Before Merger: $698,000 – $328,000 = $370,000
After Merger: $698,000 – $286,400 = $411,600
As the video states, “pricing effectively requires a good understanding of the market and production costs. Good pricing objectives are key elements in a company’s marketing strategy – pricing for profit, sales revenue, market share and unit sales. Pricing objectives at Washburn vary according to production factors, i.e. cost/unit decreases as production volume increases. The market can also determine pricing. Washburn managers monitor competitive prices and sometimes change the production specifications on guitars to target a key price point. Cost and price are heavily influenced by the quantity of the production run.” Washburn depends on independent dealers to sell guitars and they take a smaller margin from them because they have to do more work.