The TeaVee Company is planning to develop a new, ultra-high tech smart televisio

Question

The TeaVee Company is planning to develop a new, ultra-high tech smart television, with a 3D curved screen, multiple built in cameras for hi-resolution video conferencing, a state of the art sound system, voice and motion control, and other features. It plans to sell these through electronic stores such as Best Buy and Fry’s. Before beginning the product development process, though, the marketing manager needs to calculate the maximum cost that TeaVee can incur per unit.

The facts are as follows: 1) The suggested retail price (at Best Buy and Fry’s) of this product will be $3500. 2) Electronics retailers set their prices using a 30% “markup on retail”. 3) TeaVee normally calculates wholesale prices (i.e., the price it charges retailers) based on a 40% “markup on cost”.

Using this information, what is the maximum cost that TeaVee can incur per unit to manufacture this particular television? (Hint: you must work backwards to first determine the wholesale price, and then using the wholesale price you can keep working backwards to determine the maximum cost.) Show and label your work.

Explanation / Answer

Let wholesale price be = 100 Mark up is 30 % of 100 = 30 Then retail price is 100 + 30 = 130 Hence if retail price ( given) = 3500 then wholesale price = 3500 *100/130 = 2692.31 Let cost price be = 100 Mark up is 40% of 100 = 40 Then wholesale price = 100 + 40 =140 Hence if wholesale price = 2692.31 ( as calculated above ) . then cost = 2692.31*100/140 = 1923.08

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