Harold Grabner is the new president of Oneonta Glass Arts Incorporated (OGAI) a
ID: 2580530 • Letter: H
Question
Harold Grabner is the new president of Oneonta Glass Arts Incorporated (OGAI) a small manufacturing firm in Oneonta, NY, which produces exquisite glassware, using a European process developed by his ancestors many generations ago in the Innsbruck area of Austria. His great grandfather, an immigrant from Europe in the 1870’s, established a small kiln near Oneonta soon after arrival. After he passed away, Harold’s grandfather and then his father continued to operate it. Harold had worked at the plant as a young man, but subsequently moved to New York City where he operated a glass artist’s co-operative wholesale and retail firm. He returned to Oneonta in December 2016 when his father developed serious health issues. Just like dad, Harold too was not very familiar with the marketing of glassware, which is probably why OGAI used brokers to sell to wholesalers who marketed to retailers. Harold occasionally thought about eventually developing his own sales force, but that was still some time away. Harold is currently taking a second look at his plan to improve his firm’s profit performance. In 2017 OGAI had a modest profit of $160,000; his 2018 goal is to increase this by 25%. The 2017 retail selling prices of the three variations OGAI sold were $800, $600, and $400 per set, accounting for 25%, 40%, and 35%, respectively, of retail sales.a In 2017, OGAI paid its brokers a 9% commission on all dinnerware sold to wholesalers. Wholesalers margin was 28% on retailer purchase price while retailers’ markup was 39% on wholesaler selling price. OGAI’s 207 material and labor costs per glassware set ran about $95.00, while packaging and crating costs were $8.35 per set. Harold estimates machinery maintenance expenditures to be about $90,000 per year. OGAI uses both “push” and “pull” promotional approaches to marketing through their channels of distribution. OGAI sets aside a $11 co-operative advertising allowance for every set sold in the channel. In 2017, OGAI attended four national trade shows at $9,000 each and three regional trade shows at about $4,000 each. OGAI spent nearly $240,000 advertising in national consumer magazines and an additional $30,000 in trade publications to wholesalers and retailers. All of these will repeat for 2018. Broker commission for 2018 will increase to 12% while packaging crating costs will go up to $9.50 per set. Harold also plans to increase 2018 manufacturer selling price by about $75 per set. Assuming no changes in costs and prices other than those mentioned earlier, how will Harold’s required level of sales (RLS) to reach the 2018 profit goal, in units and dollars, differ from those for the 2017 profit goal, in units and dollars? That is, will they go up, down or stay the same?
Q1:What was the weighted average retail selling price of a typical OGAI pattern SET in 2017? Based on this, what was the 2017 retailer’s cost, the wholesaler selling price, the wholesaler’s cost and therefore OGAI’s manufacturer selling price of a typical set?
Q2: Starting with the weighted retail selling price, calculate OGAI’s 2017 manufacturer selling price of a typical set in a single step, using the markup chain concept.
Q3: Line itemize, then total these to determine OGAI’s 2017 unit variable cost of a typical set. (should be $141.39) Q4: What was OGAI’s 2017 $Contribution and %Contribution for a typical set?
Q5: What was OGAI’s (do not itemize) Total Fixed Cost in 2017? Hence, what was their Breakeven Point in number sets and dollar sales? (caution: always calculate $ as rounded-up # * USP)
Q6:What was OGAI's TFC + Profit in 2017? Hence, what was their 2017 Required Level of Sales or RLS in number of sets and dollar sales? (caution: always calculate $ as rounded-up # * USP)
Q7: What is the proposed OGAI manufacturer selling price per set and $ profit goal for 2018?
Q8: Line itemize, then total these to estimate OGAI's 2018 unit variable cost per set.
Q9: Estimate OGAI's 2018 $Contribution and %Contribution for a typical set?
Q10: stimate OGAI’s (do not itemize) Total Fixed Cost in 2018? Therefore what was their Breakeven Point in number of sets and dollar sales?
Q11:Estimate OGAI’s TFC + Profit goal for 2018? Therefore what is their 2018 Required Level of Sales or RLS, i.e. BEP with profit included, in number of sets and dollar sales?
Q12: Therefore, estimate the difference (2018 minus 2017) in OGAI’s RLS in Number of Sets and Dollar Sales to reach the profit goal for 2018 vs 2017?
Explanation / Answer
35%
Set 1 Set 2 Set 3 Retail selling price in 2017 $ 800 600 400 Percentage share of sales 25% 40%35%
28% on sale price 39% on cost Company ------------->Wholesaler------------------->Retailer--------------->retail selling price For 2017 Set 1 Set 2 Set 3 Retail selling price in 2017 $ 800 600 400 Retailer purchase price 576 432 288 (100/139* retail price)=whole saler selling price Less: margin by whole saler (161) (121) (81) (Retail purchase price * 28%) Cost to Whole saler 414.39 310.79 207.19 (Retail purchase price - margin by wholesaler) Selling price by OGAI 414.39 310.79 207.19 (which is the cost to whole saler) Q1 a. weighted average retail selling price for OGAI: Set 1 Set 2 Set 3 Retail selling price in 2017 $ 800 600 400 Percentage share of sales 25% 40% 35% Weighted avg retail selling price =(800*.25)+(600*.40)+(400*.35) 580 b. Retailers cost: Set 1 Set 2 Set 3 Retailer purchase price $ 575.54 431.65 287.77 (given in working note above) Whole saler selling price $ 575.54 431.65 287.77 (given in working note above) Whole saler's cost $ 414.39 310.79 207.19 (given in working note above) OGAI manufacturer selling price $ 414.39 310.79 207.19 Q2 Weighted retail selling price $ 580.00 For 2017 Weighted avg price per set $ Set 1 Set 2 Set 3 Retail selling price in 2017 $ 580.00 800 600 400 Retailer purchase price 417.27 576 432 288 (100/139* retail price)=whole saler selling price Less: margin by whole saler (116.83) (161) (121) (81) (Retail purchase price * 28%) Cost to Whole saler 300.43 414.39 310.79 207.19 (Retail purchase price - margin by wholesaler) Selling price by OGAI 300.43 414.39 310.79 207.19 (which is the cost to whole saler) Q3 Determination of OGAI's variable cost per unit: For 2017 Weighted avg price per set $ Set 1 Set 2 Set 3 Selling price by OGAI to wholesaler 300.43 414.39 310.79 207.19 Variable costs: Commission to whole saler 27.04 37.29 27.97 18.65 (selling price by OGAI * 9%) Material & labour costs per set 95 95 95 Packing & Craft 8.35 8.35 8.35 Total variable cost per unit 140.64 131.32 122.00 Contribution per set $ 273.74 179.47 85.20 (selling price - variable cost per unit) Q4 Determination of OGAI's contribution per unit: For 2017 Wtd avg Set 1 Set 2 Set 3 Selling price for OGAI to wholesaler 414.39 310.79 207.19 Less: Variable cost per unit 140.644964 131.321223 121.9975 (as per above working) Contribution per unit 170.04 273.74 179.47 85.20 Contribution % 0.54 66% 58% 41% (contribution/selling price) Q5 Total Fixed cost in 2017: $ Machinery maint expense 90000 National trade shows 36000 (9000*4) Regional trade shows 12000 (4000*3) advt in consumer magazine 240000 trade publication cost 30000 Total fixed costs 408000 Break even point = Fixed costs/weighted avg contribution per set No. of sets to break even= 2399.435427 Fixed cost/170.04 Break even sales = fixed costs/p/v ratio $ 755,555.56 (408000/0.54)Related Questions
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