Improved Product Offering

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Midwest Fan, Inc.
Internal Memorandum

To: Sanday Walker

From: Yaritza Rosa

Date: March 8, 2013

Re: Improved product Offering

I have concluded an analysis of the current cost and pricing structure of the current Gizmo against the proposed cost and pricing structure provided for the new improved Gizmo. Under the current pricing and cost structure our breakeven point is 32836 unit or $2,462,686.57 in dollars, keeping the same selling price of $75.00 while increasing our contribution margin from $24.75 to $30.00, our breakeven point with the new Gizmo, is 36667 units or $2,750,000 dollars which is approximately a 112% increase. Since we are projecting that demand is relatively inelastic I would recommend an increase in sales price on the new Gizmo to $112.50 per unit based on selling the expect volume of 80,000 of the new Gizmos in order to maintain our current operating income. I would also recommend introducing an improved Gizmo, in addition to the current model. This would allow our R&D department to research alternative materials that are more in line with the cost of the current model, as well as figure out better ways to produce the new Gizmo without a heavy increase in labor cost per unit. Redesign the current gizmo to allow for additional funtionalioty in stead of introducing compelty new gizmo. Is there opportunies to decrease cost of materials ?

Gizmo Breakeven| | | | | | |
| Current Gizmo | | | Improved Gizmo| | |
Selling Price | $75.00 | | | $75.00 | | 112.50|
Variable cost| -24.75| | | -30.00| | -30.00|
CM| $50.25 | | | $45.00 | | 82.50|
| | | | | | |
CMR | 67%| | | 60%| | 73%|
| | | | | | |
| | | | | | |
Total Fixed OH| $850,000 | | | $850,000 | | |
Total Fixed OE| $800,000 | | | $800,000 | | |
Total Fixed cost | $1,650,000 | | | $1,650,000 | | | | | | | | | |
Breakeven | 32836| Units| | 36667| units...
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