1. What factors are most likely to affect the demand for the lines of Washburn guitars (a) bought by a first-time guitar buyer and (b) bought by a sophisticated musician who wants a signature model?
a) Bought by a first-time guitar buyer: Firstly, consumer tastes will influence a guitar purchase. Is the buyer male or female? Where do they live and what kind of music has influenced these buyers growing up? What kind of guitars do their favorite musicians play and what sounds are these musicians known for making? Most importantly for music age will be a key factor. In comparison, a first time buyer such as Professor (Add your professor’s name) might try to emulate the Minnesota born artist Bob Dylan of the 60’s sound as opposed to myself who would buy a guitar based upon emulating the punk rock band Blink 182 of the 90’s. Secondly, price and availability of similar products will be the largest influence on first time buyers. Is this first time buyer purchasing their guitar as a gift for their kids or are they are buying it for themselves? Buyers will compare models of different brands in a specific price range. If it is the buyers first time they will likely be looking for the best price. Thirdly, consumer income will play a role in a first time purchase of a guitar on the micro level of perceived job security and on the marco level through the economic state of a particular buyer’s nation.
The Essay on Price Ceilings & Floors
Price ceilings are usually government policies and limits that intend to save consumers from being charged too high a price. This generally means to limit and control how high a price for a product can go. If price ceilings are not present, the suppliers will set prices extremely high for necessities which then become too expensive to be affordable. Suppliers know that no matter what, the items ...
b) Bought by a sophisticated musician who wants a signature model: Firstly, consumer taste is going to play the largest role for a sophisticated musician as opposed to the first time buyer who will consider price to be the influencing factor. The same demographic questions should be asked for a sophisticated buyer, but will more specific. Who taught these musicians how to play and who were the artists which influenced those teachers? What direction might their band members be looking to take their music and what kinds of sounds are they looking to make? Sophisticated musicians like first time buyers will have their favorite musicians influence them, but at a different level. For instance, if their favorite musician plays a music festival with a new model in Washburn’s line of signature guitars the musician is likely to take interest in this model and make a purchase. Secondly, price and availability of similar products will most likely be less of a factor, but still can play a significant role. If the experienced musician is looking to change their sound they might consider a different type of signature guitar based upon their current financial situation. If the musician can make a purchase of a similar guitar and still be satisfied then price will still be considered. Although, for musicians, if they must have a specific guitar with a specific quality the question of price becomes more of when can they make their purchase. Thirdly, consumer income of the experienced musician will decided when they will make their purchase as opposed to a first time buyer likely getting their guitar as a Christmas present. If they can’t afford their favorite signature guitar right now will a lower level batch custom guitar have the same satisfaction level? If not, how long will the musician save their money to get the signature Paul Stanly guitar from the band KISS?
2. For Washburn, what are examples of (a) shifting the demand curve to the right to get a higher price for a guitar line (movement of the demand curve) and (b) pricing decisions involving moving along a demand curve?
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In the article 'Censoring Pleas for Help', Dwight R. Lee talks about government price controls. The author likens government price controls to government censorship, arguing prices are how markets communicate with one another. The example used to demonstrate this point is the price regulations the government enforces after a natural disaster, freezing prices on such items as labor, construction ...
a) An example of a shifting of the demand curve for Washburn to get a higher price for a line of guitars would be if they had guitar player Hugh McDonald of Bon Jovi endorse this new line of signature guitars as a guest star on American Idol. Washburn’s new line of McDonald guitars would make the price inelastic for Bon Jovi guitar collectors and enthusiasts. The demand for these guitars would increase and would show as a shift in the demand curve to the right. Another example of a shift in demand curve would be an ad campaign for a lower level started guitar possibly claiming one of Washburn’s superstars started their guitar career on a particular model of starter guitar. An ad such as this might be the deciding factor for a parent making a first time guitar purchase for their child.
b) When looking at pricing decisions of movement along the demand curve these decisions is to set a specific price for a guitar line. Washburn guitars could be set at a retail price ranging from the low $300’s to the high $300’s which affects the quantity demand but is shown on the same demand curve, but at different points. If Washburn were to raise the price of their mass-customized instruments without a strategic marketing campaign in place, then the result would be less of their products demanded.
3. In Washburn’s factory, what is the break-even point for the new line of guitars if the retail price is (a) $349, (b) $389, and (c) $309? Also, (d) if Washburn achieves the sales target of 2,000 units at the $349 retail price, what will its profit be?
a) Price-$349 FC-$14,000+$4,000+$20,000= $38,000
$349/.50 for retailer mark-up VC-$25+(15x$8/hr)= $145
$174.5 net price Break-even = $38,000___ =$1,289 units
$174.5-$145
b) Price-$389 FC-$14,000+$4,000+$20,000= $38,000
$389/.50 for retailer mark-up VC-$25+(15x$8/hr)= $145
$194.5 net price Break-even = $38,000___ =$768 units
$194.5-$145
c) Price-$309 FC-$14,000+$4,000+$20,000= $38,000
$309/.50 for retailer mark-up VC-$25+(15x$8/hr)= $145
$154.5 net price Break-even = $38,000___ =4,000 units
The Essay on Cost, volume, and profit formulas
The cost-volume-profit analysis is a business tool which companies utilize in order to analyze the effects of changes on costs and volume in its profits. It has five major components namely, volume or level of activity, unit selling prices, variable cost per unit, total fixed cost, and sales mix. The volume of level of activity refers to the quantity of the product which is sold. Unit selling ...
$154.5-$145
d) Price-$349 FC-$14,000+$4,000+$20,000= $38,000
$349/.50 for retailer mark-up VC-$25+(15x$8/hr)= $145
$174.5 net price Profit= ($174.5×2000/unit)-[(38,000)+($145×2,000)]
Profit= $349,000-$328,000
Profit= $21,000
4. Assume that the merger with Parker leads to the cost reductions projected in the case. What will be the (a) new break-even point at a $349 retail price for this line of guitars and (b) new profit if it sells 2,000units?
a) Price-$349 FC-($14,000x.60)+$4,000+$20,000 =$38,000
$8400+$4,000+$20,000 = $32,400
$349/.50 for retailer mark-up VC-$25+(15x ($8x.85/hr)= $145 25+(15x$6.8/hr) = $127
$174.5 net price Break-even = $32,400___ =683 units
$174.5-$127
b) Profit= ($174.5×2000/unit)-[(32,400)+($127×2,000)] Profit= $349,000-$268,400 Profit= $62,600
5. If, for competitive reasons, Washburn eventually has to move all its production back to Asia, (a) which specific fixed and variable costs might be lowered and (b) what additional fixed and variable costs might it expect to incur?
c) The fixed costs that would be lower are the cost of rent and taxes for the manufacturing plant. The management and quality control programs would be cost Washburn less as well. The variable costs such as labor will be lowered and also the materials will cost less. Asia is well known for its cheap labor and raw materials.
d) At the same time since labor is cheap Washburn will not get the same quality of management so they will need to hire US managers to fly to Asia to oversee production. There will also be a cost of shipping goods from Asia to the US to be sold which will be a fixed cost. One cost hidden cost might be the buyers decision, if they are looking at two different guitars and one is made in the US and one in Asia the buyer will stereotype the US made guitar as having better quality.
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Salta Company installs a manufacturing machine in its factory at the beginning of the year at a cost of $87,000. The machine’s useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines’ second year depreciation under the units of production method: Answer: $16,900 ...
