Question

Marketing by the Numbers: Pricey Sheets

Many luxury sheets cost less than $200 to make but sell for more than $500 in retail stores. Some cost even more consumers pay almost $3,000 for Frett'e "Tangeri Pizzo king-size luxury linens. The creators of a new brand of luxury linens, called Boll & Branch, have entered this market and are determining the price at which to sell their sheets directly to consumers online. They want to price their sheets lower than most brands but still want to earn an adequate margin on sales. The sheets come in a luxurious box that can be reused to store lingerie, jewelry, or other keepsakes. The Boll & Branch brand touts fair trade practices when sourcing its high-grade long staple organic cotton from India. Given the cost information below, refer to Appendix 2: Marketing by the Numbers to answer the following questions.
Cost/King-size Set
Raw Cotton $28.00
Spinning/Weaving/Dyeing $12,00
Cut/Sew/Finishing $10,00
Material Transportation $3,00
Factory Fee $16,00
Inspection and Import Fees $14,00
Ocean Freight/Insurance $5,00
Warehousing $8,00
Packaging $15,00
Promotion $30,00
Customer Shipping $15,00
10-13 Given the cost per king-size sheet set above, and assuming the manufacturer has total fixed costs of $500,000 and estimates first year sales will be 50,000 sets, determine the price to consumers if the company desires a 40 percent margin on sales.
10-14 If the company decides to sell through retailers instead of directly to consumers online, to maintain the consumer price you calculated in the previous question, at what price must it sell the product to a wholesaler who then sells it to retailers? Assume wholesalers desire a 10 percent margin and retailers get a 20 percent margin, both based on their respective selling prices.

Answer 1

10-13 : $277

10-14 : $199.40

Step-by-step explanation:

10-13

therefore Cost per king-size sheet set will be

$28 + $12 + $10 + $3 + $16 + $14 + $5 + $8 + $15 + $30 + $15 = $ 156

First year sales = 50,000 sets

Total cost = $500,000

Average fixed cost = $500,000/50,000 = $10

Total Cost per king-size sheet set = ( cost per king-size sheet )$156 + (Average fixed cost ) $10 = $166

Desired margin on sales = 40%

Let us consider the sale price to be $100x

since the margin is 40% of the sales this means margin = (40/100)*100x = 40x

So, cost price should be= $(100 – 40) = $60x

Also, Cost price = $166

which means : $166 = 60x

hence x = 166 / 60 = 2.77

therefore the sale price = ( 100 * 2.77 ) = $277

10 - 14

The Retailer sells to customers at a price of $277 after buying from the wholesaler

The retailer gets the margin of 20%, therefore the margin of retailer will be = (20/100)*277 = $55.4

Therefore the price at which retailer will buy the sheet set from the wholesaler will be = $277 ( original price ) - ( 20% of $277) $55.4 = $221.60

While the Wholesaler sells the sheet set to the retailer for $221.60 and gets the margin of 10%

hence the margin of the wholesaler = 10%*221.60 = $22.16

Then the wholesaler will get the sheet set at

= $221.6 – $22.16 = $199.40

This the price at which the company will now sell the sheets to the wholesaler