1. Flat Rap® is a new fishing lure from Rapala. Cabela’s currently sells the Flat Rap® at retail for $8.99 each. Rapala sells the lures direct to Cabela’s for $4.25 each. Each Flat Rap® lure costs Rapala $1.83 in variable costs. Rapala’s committed fixed costs for the Flat Rap® lure are $164,017. Rapala estimates it will spend $600,000 in trade promotion and advertising in the coming year.
(a) What is the fishing lure’s CPU? _________________
(b) What is Rapala’s BEP$ (include all fixed costs)? ________________
(c) If Rapala has a profit objective of $2,000,000 for the Flat Rap®, what is the necessary BEPunits to cover all fixed costs as well as the profit objective?
(d) If Rapala sells 931,614 units, what is TC? __________________
2. Johnson & Johnson (J&J), manufacturers and distributors of Band-Aid® Flexible Fabric bandages, sells the Flexible Fabric bandages in various sizes and package assortments. Costco has approached J&J with a request for a “warehouse club store” package that would hold three hundred Flexible Fabric bandages in the five most commonly used sizes. J&J estimates such a package would cost $16.45 to produce. J&J would sell the three hundred count package to Costco for $29.95. Fixed costs associated with this product are estimated to be $46,775. The total home health bandage market is estimated to be $38,918,000 (at manufacturers’ prices) this coming year.
(a) What is J&J’s CM for the proposed product? (Show your answer to two decimal places.)
(b) What is J&J’s BEPunits for the proposed product? ________________
(c) If J&J has a $350,000 profit objective for the proposed product, what is its BEP$ market share? (Show your answer to two decimal places.)
(d) If J&J sells 52,800 units to Costco, what market share... [continues]
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