The Bouncing Ball, Inc. makes plastic balls for children to bounce off walls. The company is currently developing a new product, called a Door-a-ball. They plan to sell the ball for $2.27 to retailers. You have been hired to decide if the company should go ahead with the development and marketing of this item.
You have investigated the costs associated with production and marketing and have obtained the following information:
Source of Cost Amount
Payment on equipment loan, per month $1243.64
Materials, per ball $0.49
Packaging, per ball $0.63
Labor, per ball $0.16
Marketing expense, per month $2610.84
Developer’s royalty, per ball $0.12
Part I Separate the costs into fixed and variable costs and write the cost function and the revenue function.
Part II Find the break-even point from part I .The marketing people estimate that they can sell 5000 balls per month. Should the company go into production?
Part III In consultation with the sales department you find that the price per ball may be optimistic. The sales department says that in order to sell the balls to large chain stores, those stores must be offered discounts. They estimate that the total revenue from 3000 balls will be $6750 and the total revenue from 6000 balls will be $11,400. Use this data to construct a revised revenue equation. This revenue equation will be different in form from the usual revenue equation. It will be in the form R = mx + b (Hint: (3000, 6750) and (6000, 11,400))
Part IV Use the revised revenue equation to find the revised break-even point. Assuming that the marketing forecast is accurate, should the company go into production?
Part V The sales people have expressed the opinion that if they are allowed to offer discounts, they will be able to sell 7000 balls per month. Should the company go into production?
You have investigated the costs associated with production and marketing and have obtained the following information:
Source of Cost Amount
Payment on equipment loan, per month $1243.64
Materials, per ball $0.49
Packaging, per ball $0.63
Labor, per ball $0.16
Marketing expense, per month $2610.84
Developer’s royalty, per ball $0.12
Part I Separate the costs into fixed and variable costs and write the cost function and the revenue function.
Part II Find the break-even point from part I .The marketing people estimate that they can sell 5000 balls per month. Should the company go into production?
Part III In consultation with the sales department you find that the price per ball may be optimistic. The sales department says that in order to sell the balls to large chain stores, those stores must be offered discounts. They estimate that the total revenue from 3000 balls will be $6750 and the total revenue from 6000 balls will be $11,400. Use this data to construct a revised revenue equation. This revenue equation will be different in form from the usual revenue equation. It will be in the form R = mx + b (Hint: (3000, 6750) and (6000, 11,400))
Part IV Use the revised revenue equation to find the revised break-even point. Assuming that the marketing forecast is accurate, should the company go into production?
Part V The sales people have expressed the opinion that if they are allowed to offer discounts, they will be able to sell 7000 balls per month. Should the company go into production?