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Problem Set

Question Nine

The break-even point for the company can be represented by the following formula.

B = number of units to achieve the point of breakeven

F = fixed costs

V = variable costsP = Unite price

Hence, if we take the company’s fixed costs at $1, 742,000, we are aware that the company has to price its staplers at 18.98 dollars to cover the costs. However, if the stapler is sold for 18.98, the company incurs an expense from the wholesaler or retailer. TR = total revenue=35000*506.67=1,742,000+1,220,000+253,000=3,215,000TVC = total variable costs=500*35000=17500000.

Total revenue can be achieved through the formula TR = FC + TVC + Profit, where:FC = fixed costs

P*18.98= 1,742,000+1,220,000+253,000=3,215,000

P=7600000/15000=506.67Hence, achieving the breakeven point can be achieved by dividing the total expenses by the unit price of the staplers.

Breakeven = Total cost/ unit cost

3,215,000/18.98

= 169389 units. Nevertheless, it is important to understand that the fixed costs of the staplers increase “stepwise”. This implies that the fixed costs are prone to change after a certain revenue has been reached. For example, if the company intends to produce 10,000 more stapler units than normal, it may be forced to hire more staff or purchase additional machinery hence increasing the operating costs.

Question Ten

Upon analyzing the company situation, Swingline should indeed allow the retailers to increase their margins from 45 % to 52% in exchange for product promotion benefits. Even though margin increasing by the retailers has a significant reduction on the company’s financial returns, the aspect of product promotion will ultimately attract more buyers and hence raise total sales through increased demands. The assumption in this regard is that the product promotion strategy will achieve its objective of raising demand.

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