Report
Sally Melly is facing the challenge of the determining the quantity of kites to be produced annually in her newly starting high-end kite company. She desired to sale at $75 dollar per unit but she is also considering to sale at a rate higher than $75 by raising it to $90. Her main objective is to determine the quantity of units she can produce annually to breakeven if she sells at her desired price or at the raised price.
Sally had come up with two techniques to improve sales in which one is by desires to earn small profit of $6,000 annually before tax deductions either she sells at $75 or $90? Optimistically, Sally is dreaming of a successful outcome in which she also desires to have a celebrity endorse her product for $21,000 which will boost sales at the stated price of $75 and 90. Taking this into consideration she also wishes to determine her annual breakeven to be produced and the breakeven to achieve the stated operating income. Another idea is switching from plain $1.50 per yard fabric to a higher-end $4.00 per yard fabric which will decrease margin. Considering this, she also wishes to determine her breakeven quantity and sales.
Using these data, the problem was formulated as a cost volume profit/Breakeven Analysis and it was solved using Excel spreadsheet using formulas and guidelines from Farris, and .
Based on the stated sales price of $75 and $90 per unit for the products, The quantity showed in shown in Table 1 were recommended to be produced to breakeven by Sally annually.
BEP means Breakeven OI means Operating Income before Tax
QTY means Quantity CE means Celebrity Endorsement
The result in table 1 showed that production of 844 units annually will lead to breakeven if product sales at $75 per unit which will lead to projected revenue of $50,746.27 per year while selling at $90 will reduce breakeven production to 564 units reducing projected revenue to $50,746.27. Moreover, if an operating income of $6,000.00 is desired, production will be 1,042 units annually to breakeven at $75 to generate a revenue of $78,163.77 while production will breakeven at 697 units if product is sold at $90 which will generate a revenue of $62,686.57.
Using one of the ideas devised, sales will be boosted if celebrity endorsement is acquired for $21,000.00 production will increase and breakeven at 1,538 units generating a revenue of $115,384.62 at $75 sale price while at $90 sales price, production will breakeven at 1,028 units with annual revenue of $92,537.31. Furthermore, after getting the endorsement, the desire to generate operating income of $6,000.00 will lead to breakeven production of 1,737 units annually with revenue of $130,272.95 at $75 sales price and at $90 sales price breakeven units annually will be 1,161 units with revenue of $104,477.61.
Using the second ideas devised, sales will be boosted if there is switch from the rather plain $1.50 per yard fabric to a higher-end $4.00 per yard production will increase and breakeven at 1,720 units generating a revenue of $129,005.06 at $75 sale price while at $90 sales price, production will breakeven at 855 units with annual revenue of $76,948.87. Finally, if after switch from the rather plain $1.50 per yard fabric to a higher-end $4.00 per yard to generate operating income of $6,000.00, the breakeven production will have to be increased to 2,125 units annually with revenue of $159,315.19 at $75 sales price while at $90 sales price breakeven units annually will be 1,056 units with a revenue of $95,054.48.
Work Cited:
Farris, Paul W, et al. Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. New Jersey: Pearson Education, 2010. Print.
Levine, D and B Michele . Against Intellectual Monopoly. United Kingdom: Cambridge University Press, 2008.
