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B2201 – Introduction to Marketing Tactics
Pricing Questions

1. Cat Harbour Fly Fishing Supplies makes a very high quality fly fishing rod and reel. Their fixed costs for the coming year are estimated at $200,000. They sell the rod/reel combination for $250 directly to retailers throughout North America and Europe. The company’s variable cost to produce each rod/reel combination is $200. Sales for the coming year are expected to reach $1,250,000.

a. What is the break-even point in units?
b. What is the break-even point in dollars?
c. What is Cat Harbour’s expected profit for the coming year?

One of the managers at Cat Harbour thinks the sales forecast is too optimistic. She believes sales are more likely to be about $875,000.

d. What would Cat Harbour’s expected profit be if this forecast is accurate?

2. Dog Cove Knitworks (DCK) is a new company that will produce hand-knit sweaters. Each of the company’s six partners has designed three different sweaters. They have made up samples of each design and have determined that, on average, the sweaters each take about seven hours to knit. Materials cost per sweater average $19. The partners have decided that initially they will work for only $8 per hour, in anticipation of reasonable profits in the future. They intend to sell the sweaters directly to consumers through craft fairs. They have budgeted $7,000 to cover the various costs associated with participation in craft fairs (book rental, display costs, travel expenses, etc).

a. The partners at DCK have made careful estimates of market potential and sales potential for their products. They estimate that demand at DCK for 2011 will be at least 1000 sweaters. What is the lowest price they should charge in order to break-even? b. The partners want to make 25% profit on cost. What price should they set to achieve that objective? c. How many sweaters do they need to sell at the price you just calculated In order...
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