Question

Shannon's craft beers are sold via a three-tier distribution channel consisting of its brewery, a distributor (miller distributing), and the retailer. At the retail level, a six-pack of its craft beer sells for about $12.00. If the typical retailer demands a 50% markup based on selling price and the distributor also wants a 42% markup based on selling price, what will be the maximum that Shannon's can charge the distributor for a six-pack? Compute your answer to the nearest penny.

Answer 1

The maximum price that Shannon's can charge the distributor for a six-pack is $5.67.

Step-by-step explanation:

In order to determine the maximum price that Shannon's can charge the distributor for a six-pack, we need to consider the markup percentages demanded by both the retailer and the distributor. First, let's calculate the selling price that the retailer will charge based on the given information. The retail price for a six-pack is $12.00, and the retailer demands a 50% markup based on selling price. So, the retailer's cost price is $12.00 / (1 + 50%) = $8.00. Now, let's calculate the selling price that the distributor will charge the retailer. The distributor wants a 42% markup based on the selling price, so the distributor's cost price is $8.00 / (1 + 42%) = $5.67. Therefore, the maximum price that Shannon's can charge the distributor for a six-pack is $5.67.