Reference no: EM13190290
Chief Chef A at Cakes & Puffs has just developed the ultimate chicken puff with many rich ingredients and would like to market it as the "King Chicken Puff". Management intends to explore the different ways to price this item. Assume the unit cost is $2.50.
(a) If management wants a 30% mark-up over cost, what is the unit selling price? If management wants a 30% margin on the unit selling price, what is the unit selling price?
Management invested $200,000 to set up the production for 'King Chicken Puff'. Determine the breakeven quantity, if pricing is based on the cost mark-up method.
(b) The sales forecasts for "King Chicken Puff" are: 250,000 units for a pessimistic forecast, 300,000 units realistically and 400,000 units optimistically. What is the net income or loss for the sales based on the pessimistic and optimistic scenarios?
(c) Cakes & Puffs plans to invest $300,000 to develop a new line of high-end chilli condiment to complement its "King Chicken Puff" sales. Each bottle of the chilli is to be priced at $5 with a unit cost of $2. Calculate the return on investment, assuming 20,000 bottles can be sold in the first year.
(d) Chief Chef A is thinking of introducing target pricing to the company. Explain the meaning of target pricing and describe how it works. One major problem of target pricing is volume variability. How can volume variability affect the success of target pricing?
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