Reference no: EM133152406

Question - The Great Threads Company sells hand-knit sweaters. Great Threads is planning to print a catalogue of its products and undertake a direct mail campaign. The cost of printing the catalogue is $20,000 plus $0.10 per catalogue. The cost of mailing each catalogue (including postage, order forms, and buying the names from a mail-order database) is $0.15. In addition, the company will include direct reply paid envelopes in its mail-outs. It incurs $0.20 in extra costs for each direct mail envelope used by a customer. The average size of a customer's order is $40, and the company's variable cost per order (due primarily to labour and material costs) average around 80% of the order's value. The company plans to mail 100,000 catalogues. It wants to develop a spreadsheet model to answer the following questions:

How does a change in the response rate affect profit?

For what response rate does the company breakeven?

We can utilise Goal Seek to find the breakeven point.

If the company estimates a response rate of 3%, should it proceed with the mailing?

How does the presence of uncertainty affect the usefulness of the model?