MKTG 1110: Washburn International Guitars-Marketing Quantitative Analysis

Name
Washburn International Guitars-Marketing Quantitative Analysis and Decision MakingMarketing Principles – MKTG 1110
Price & Marketing Math Case: Answer Sheet Business
Eibling Hall 401
Question
1] What factors are most likely to affect demand for the lines of Washburn guitars (a) bought by first-time guitar buyers and (b) by a sophisticated musician who wants a signature model?
Fist time buyer - the price, ease of use, and quality of guitars are the main factors influencing the purchasing behavior. First time buyers are more willing to purchase the guitars when they are low priced, while being a recognized brand and of good quality (Stone, 1996). Another factor is the resale value for those who are likely to resell the guitars.
Sophisticated musicians - The buyers look at the quality, prestige and performance of the guitar for the preferred type of music. The sophisticated musicians also look at the design, appearance and whether the guitars are associated with prestige. Unlike the first time buyers, they are less inclined to make purchasing decisions based on price alone.
2] For Washburn, what are some factors that may cause the demand curve for the new guitar line to shift (movement of the demand curve?)
The shift in the demand curve is associated with factors that change the demand other than price. The music instrument manufacturing sector is increasingly changed, and players have to adapt to these changes to be competitive (Garland, 2015). The movement of the demand curve is mostly associated with price sensitivity, and the range of guitar products in the market including signature guitars.
3] In Washburn’s Chicago plant, what is the break-even point in units and sales?
(BEP) for the new line of guitars, if the suggested retail price is
(a) $850,
(b) $900,
(c) $1000.
Show your work. Hint: Calculate Washburn’s selling price to retailers first.
$ 850
Retail Price $ 850, Retail markup= 50%: Net Price= $425/ unit
Fixed costs (FC) = $ 360,000
Unit variable costs (VC) = ($15/ hr* 8hrs) + $150/ unit= $270
BEP =FCP – UVCBEP =$360,000$425 – $270
BEP= 2,323 units
BEP in sales=2,322.28*425=$987,275
(b)$ 900
Retail Price $ 900, Retail markup= 50%: Net Price= $450/ unit
Fixed costs (FC) = $ 360,000
Unit variable costs (VC) = ($15/ hr* 8hrs)+ $150/ unit= $270
BEP =FCP – UVCBEP =$360,000$450 – $270BEP= 2,000
BEP in sales= 2,000* $450= $900,000
(c)$ 1,000
Retail Price $ 1,000 Retail markup= 50%: Net Price= $500/ unit
Fixed costs (FC) = $ 360,000
Unit variable costs (VC) = ($15/ hr* 8hrs) + $150/ unit= $270
BEP =FCP – UVC
= $360,000($500-$270)
BEP= 1,566 units
BEP in sales= 1,566.22*500= $782,610
4] If Washburn achieves the sales target of 25,000 units at $850 suggested retail price, what will its profit be?
Show your work. Hint: Calculate Washburn’s selling price to retailers first. (Profit = Total Revenue – Total Costs) (10 points possible)
Retail Price (P) = $ 850, the retail markup is 50% and the net price= $ 425
= Total Revenue – Total Cost
= (Unit Price x Quantity Sold) – Total Cost
Price= Total revenue – variable costs – fixed costs
Profit= ($425* 25,000)-[ (25,000* 270)+ 360,000]
Profit=$10,625,000-($6750, 000+$360,000) = $ 3,515,000
5] Assume that Washburn moves its production to Nashville and that the costs are reduced as projected in the case. Given an $850 suggested retail price, what will be the new?
BEP in units
BEP in Dollars
(10 points possible)
(a) BEP in units
$ 850
Retail Price $ 850, Retail markup= 50%: Net Price= $425/ unit
Fixed costs (FC) = $ 250,000
Unit variable costs (VC) = ($10/ hr* 8hrs) + $150/ unit= $230
BEP =FCP – UVCBEP =$250,000$425 – $230
BEP=1,282
(b) BEP in Dollars
1,282*425=$ 544,850
6] Assume, that Washburn negotiates a new retail markup of 35%, with a suggested retail selling price of $850,
what is Washburn’s new selling price per guitar to retailers
what is Washburn’s new BEP in units, and
What is Washburn’s new BEP in dollars?
(a) What is Washburn’s new selling price per guitar to retailers
Selling price= (1-0.35)* $850=850-297.5= $552.5
(b) What is Washburn’s new BEP in units, and
Chicago
BEP= $360,000/ (552.5-270),
=1274.34=1275 units
Nashville
BEP= $250,000/ (552.5-230)
= 775.19= 776 units
(c) What is Washburn’s new BEP in dollars?
Chicago
=1275*552.5
BEP in dollars= $ 704,437.5
Nashville
=776*552.5
BEP in dollars =428,740
New Selling Price $ 552.50ChicagoNashvilleBEP in Units 1,275 776BEP in dollars $704,437.5  $428,740
7] If for competitive reasons, Washburn eventually has to move all its production to China, (a) which specific costs might be lowered and (b) what additional costs might it expect to incur? ...