Monicas Handbag PDF

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answers to Monica's handbook assignment ...

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Monica’s Designer Handbags: Creative Marketing Decision-Making Based on Financial Analysis—A Case Study (Solution) Direct Material - $10 per unit Shipping Cost (Selling and Distribution cost) - $5 per unit Total variable cost - $15 per unit Sales Revenue = $14,40,000 per annum =120,000 per month Sales = 120,000 Profit = $50,000 Fixed Cost = $25,000 Variable Cost = $45,000 (Balancing Figure) No. of Units Sold = $45,000/$15 = 3000 units per month So, Sales price per unit = $40 1. At what price does Monica sell her handbags to the independent retail channel distributor? Total Cost of Manufacturing + Shipping =$15, Set price for End user is $100, Retailer Price is $50 (with 100% Markup covering). Therefore, Wholesale Price would be $40 to have margin of 20% of retail price which is $50. So, Monica sell her handbags to the independent retail channel distribution at $50 2. What are the unit contribution margins (in dollars per handbag) for the distributor and the independent retailers? (Show the transaction prices and margins to each party in a diagram and label it Exhibit 1- Independent Retailers’ Channel.) Exhibit 1 – Independent Retailers’ Channel Wholesaler: Sales Price Per Unit = $40 per handbag Shipping Cost (Variable) = $5 per handbag Direct Manufacturing = $10 per handbag Total Variable Cost = $15 per handbag Contribution Margin = $25 per handbag Retailer: Sales Price Per Unit = $50 per handbag Shipping Cost (Variable) = $5 per handbag Direct Manufacturing = $10 per handbag Total Variable Cost = $15 per handbag Contribution Margin = $35 per handbag 3. What is Monica’s unit contribution margin (in dollars per handbag) after direct manufacturing and shipping costs? Sales Price $40 Per Handbag Direct Manufacturing $10 per handbag and Shipping Cost $5 per handbag Wholesaler: Contribution Margin = Sale Price per handbag – Variable cost per handbag = $40 - $15 = $25 per handbag

Retailer: Sales Price $50 Per Handbag Direct Manufacturing $10 per handbag and Shipping Cost $5 per handbag Contribution Margin = Sale Price per handbag – Variable cost per handbag = $50 - $15 = $35 per handbag 4. How many handbags must Monica sell per month in order to breakeven, if her overhead expense is $25,000 per month? Breakeven selling point per month = Fixed cost / Contribution margin = 25000/25 = 1000 bags or (12000 bags annually) 5. What share of the moderately priced (i.e., ~$100 at retail) designer handbag market, estimated at $120,000,000 per year, must Monica achieve in order to breakeven? 12000 bags will sell at $100 in retail stores. Total revenue = 12000*100 = 1,200,000 Total market size - 120,000,000 Hence, market share to breakeven = 120000 * 100 /120,000,000 = 1% of the overall market Therefore, the share of the moderately priced (i.e., approx. $100 at retail) designer handbag market is 1% of the overall market, with an estimated at $120,000,000 per year, in order for Monica to achieve breakeven. 6. How many handbags must Monica sell per month in order to achieve a bottom-line profit impact of $50,000 per month? For bottom line profit of $50,000, she needs to cover her fixed costs of $25,000 first and then achieve this profit. Hence, breakeven point for $50,0000 bottom line = ($25,000 + $50,000) / 25 = 3000 bags 7. What is Monica’s profit margin (expressed as a percentage), if she generates $600,000 in profits per year on $1,440,000 in sales to the distributor per year? Profit Margin = (Profit/Net sales) * 100 = ($60,000/$1,440,000) * 100 Profit Margin = 41.667% The profit margin is 41.667%, if Monica generates $6000,000 in profits per year on $1,440,000 in sales to the distributor per year. 8. What is Monica’s unit contribution margin (in dollars per handbag) on the Grand*Mart initial deal, using their suggested wholesale price of $20, after incremental direct expenses? (Diagram as Exhibit 2 - Grand*Mart Discount Channel.) Exhibit 2 Sales Price Per Handbag $20 Direct Manufacturing $10 per handbag and eliminate Direct Shipping Cost Contribution Margin = Sale Price per handbag – Variable cost per handbag = $20 - $10 = $10 per handbag

9. What is the incremental profit impact (in dollars per month) of the suggested initial Grand*Mart 2,000 bag deal to Monica, after the increased overhead expense of $25,000? What is the incremental profit impact of the prospective 10,000 bag order, after increased overhead expense of $75,000? I think for few years there won’t be profit. Since Monica would be selling her handbags for much lesser price and with incurring more overhead expenses. 10. What are Monica’s other key financial and non-financial considerations (such as, cannibalization of the independent retailer channel) for the suggested Grand*Mart deal? Some of the Key financial and non-financial considerations suggested for the Grand*Mart deal are as follows: 1. Cannibalization of the independent retailer channel 2. Market Share 3. Innovation 11. Should Monica propose the Grand*Mart deal as suggested? Or should she take a pass and stay exclusively with the independent retailer channel? Or should she renegotiate the initial 2,000 bag deal for the first quarter? Should she offer Grand*Mart an exclusive 10,000 deal for the second quarter? I think Monica should take a pass and stay exclusively with the independent retailer channel. Since she is doing good and has created a good contact with the retailers. If it didn’t do well with Grand*Mart she will lose her customers and the retailers trust. 12. What is the maximum wholesale price that Grand*Mart could be willing to pay Monica, given their probable retail price and typical margin requirements? If Monica decides to renegotiate the initial Grand*Mart deal as of the first quarter with volumes of 2,000 bags per month and incremental overhead of $25,000 per month, what “best and final” price should she propose that would be acceptable to both parties? What is the revised incremental profit impact? Monica should at least price $35 that would be the best and final price she should propose and would be acceptable to both parties. 13. If Monica decides to offer Grand*Mart an exclusive deal as of the second quarter at minimum volumes of 10,000 bags per month with overhead expenses of $75,000 per month, what “best and final” price should she propose that would be acceptable to both parties? What is the profit impact of this exclusive deal? I think Monica proposed $30-$35 for the second quarter at minimum volumes of $10,000 bags per month with overhead expense of $75,000 per month and I think that should be acceptable to both parties....