Homework Sourse1A Sound Systems Inc produces and markets wireless speakers
1-A) Sound Systems Inc. produces and markets wireless speakers. Management is thinking about developing a new model, the SonicBoom. The SonicBoom will cost approximately $75 per unit to produce, and will be sold to retailers (such as Fry’s and Best Buy) at a price of $150, with a suggested retail price (i.e., the amount charged by retailers to consumers) of $249. Sound Systems Inc. estimates that it will incur annual costs of $6 million to advertise and promote the SonicBoom, $2.5 million to cover selling and distribution expenses, and another $1.5 million to cover fixed overhead expenses. Based on this information, how many units does Sound Systems Inc. need to sell in order to break even? (Hint: Keep in mind that SoundSystems is not a retailer.) 2.5 points
1-B) If Sound Systems Inc. sells 175,000 units of the SonicBoom in a given year how much profit (or loss) would it realize? 2.5 pts
1-C) If Sound Systems Inc. were to spend an additional $1 million on advertising (i.e., on top of the amount specified in #1), how many additional units would it have to sell to break even? 2.5 pts
1-D) If Sound Systems Inc. were to lower the wholesale price to $139 (i.e., the amount paid by retailers), and set the MSRP (manufacturer’s suggested retail) price at $219, how many additional units would it have to sell in order to earn the same amount of profit as in #2? (Use the information from problems #1 and #2.) 2.5 pts
| 1-A) Sound Systems Inc. produces and markets wireless speakers. Management is thinking about developing a new model, the SonicBoom. The SonicBoom will cost approximately $75 per unit to produce, and will be sold to retailers (such as Fry’s and Best Buy) at a price of $150, with a suggested retail price (i.e., the amount charged by retailers to consumers) of $249. Sound Systems Inc. estimates that it will incur annual costs of $6 million to advertise and promote the SonicBoom, $2.5 million to cover selling and distribution expenses, and another $1.5 million to cover fixed overhead expenses. Based on this information, how many units does Sound Systems Inc. need to sell in order to break even? (Hint: Keep in mind that SoundSystems is not a retailer.) 2.5 points |
| 1-B) If Sound Systems Inc. sells 175,000 units of the SonicBoom in a given year how much profit (or loss) would it realize? 2.5 pts |
| 1-C) If Sound Systems Inc. were to spend an additional $1 million on advertising (i.e., on top of the amount specified in #1), how many additional units would it have to sell to break even? 2.5 pts |
| 1-D) If Sound Systems Inc. were to lower the wholesale price to $139 (i.e., the amount paid by retailers), and set the MSRP (manufacturer’s suggested retail) price at $219, how many additional units would it have to sell in order to earn the same amount of profit as in #2? (Use the information from problems #1 and #2.) 2.5 pts |
Solution
1-A) The manufacturing cost of SonicBoom is $75 and the selling cost to retailerrs is $150, therefore the pofit incurred is around $75 each product. Now, the expenses for the product are:
Advertisement - $6 Million
Selling and Distribution expenses - $2.5 Million
Fixed Overhead Expenses - $1.5 Million
Total expense is around $10 Million
In order to break even the number of items needs to be sold = $10 Million/$75
= 133333.33 is equivalent to 133334 SonicBooms
1-B) Total number of SonicBooms to be sold = 175000
Total Cost Price = 175000 * $75 + $10 Million
= $23125000
Total Selling Price = 175000 * 150
= $2625000
ToTal Selling Price - Total Cost Price
= $3125000
1-C) If the Advertisement cost is increased by $1 Million then total expense = $11 Million
In order to break even the number of items needs to be sold = $11 Million/$75
= 146667
Additional Units = 146667 - 133334
= 13333
1-D) Profit = $312500
Selling Price = 139
Profit incurred in selling one item = 139 - 75
= 64
312500 = 64 * X (X is the number of Items to be sold)
In order to earn the same profit, additional 4882 items needs to be sold.
