Classic Knitwear Case

Topics: Costs, Variable cost, Marketing Pages: 3 (711 words) Published: March 5, 2013
Classic Knitwear Case

1. Does the product “fit” Classic’s financial and strategy needs, and its capabilities?

In terms of the strategy, the new product does strategically align with its current operations. The new product will remain unbranded showing only the Guardian name and, although, Classic has a greater market share in the wholesale sector, concentrating on their retail channels does have a good potential for growth. Successfully breaking into this sector will require a good task force; however, hiring sales reps specifically focusing on this sector as Miller did will help sustain a steady sales course. Plus, with Guardian having a reported 95% consumer awareness of their products will potentially alleviate pressure in generating unaided awareness of this new brand.

Furthermore, Classic has had success and experience in partnerships with retailers in creating seasonal packages and displays so utilizing current resources will be an added plus and making its marketing plan feasible.

2. What sales volume will break even on Classic’s 2-year investment and what is the estimated demand for the new line over the 2-year launch?

Licensing fee - $100,000 (Year 1)
(5% of net sales after Year 1)
Licensing Fee2 = (N/2)*.05* gross margin
(assuming N is spread evenly)
Salary = $255,000 per year (3 salary employees)
$510,000 for two years
Total Marketing Investment = $3 million for two years
(in part Advertising = $1.2 million total for 2 years)
Total Fixed Costs = $3,610,000 + Licensing Fee2

Break Even Analysis

Average Manu Cost per case = $428.88
(5% off-invoice trade promotion)
Average Manu Cost per case w trade promo = $407.44
(20% orders receive 10% advertising allowance)
Average Manu Cost per case w trade promo and allowance = $364.55

Average Gross Margin per case = $169.20
Average Gross Margin w trade promo = $147.76 (80% orders)
Average Gross Margin w trade and...
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