Reference no: EM132561935

Steinhouse Knitting Mills (Canada) Ltd.

In 2005, Steinhouse Mills evaluated the possibility of producing a unique line of cashmere sweaters as an entry point into the women's fashion market. Mark believed there were only four major Canadian competitors and seven smaller Canadian competitors in this product/market. Due to a lack of space at the company's plant on Chabanel Street and having limited experience in women's fashion accessories, the business plan proposed a temporary lease of a building and machinery in an industrial area. Mark estimated fixed production costs for a season run to include $700,000 for equipment and building rental, $80,000 for general and administrative expenses, $320,000 for distribution costs including shipping and warehousing, and $250,000 for promotion and agent/broker fees. Each item would require $78 for material (yarn, thread, buttons, etc.) and $22 in labour.

Based on the retail selling price and with the help of a sales agent, Mark estimated annual retail sales for the 11 competitors as follows:

Competitor / Location                             Retail Price ($)                  Retail Sales ($)                      Retail Sales (units)

Boutique Mills / Montreal                             $260                            $45,500,000                            175,000

San Remo / Montreal                                    $190                                 $71,000,00                          375,000

Stratton Knitting / Toronto                             $240                                 $7,200,000                           30,000

Grace Co. / Winnipeg                                      $170                                  $34,850,000                       205,000

All Others / Various                                          $140                                  $16,100,000                       115,000

The business plan assumed a conventional agent/broker channel and profit model. In the fashion industry, retailers typically apply a 33% fee based on acquisition price and wholesalers require 20% margin for storage and distribution. Agent/broker fees were included as a fixed cost of production.

Questions/Responses

Round questions 2, 3, and 5 to 2 decimal places. Round question 4 to nearest whole unit.

Question 1. Choose one competitive-based strategy and set MSRP accordingly.

Question 2. Calculate price paid by the retailer to acquire the product for resale at MSRP.

Question 3. Calculate price paid by the wholesaler to acquire the product for distribution.

Question 4. Calculate breakeven quantity for Steinhouse.

Question 5. Calculate percentage of market share required by Steinhouse to break even.