Relationship between response rate and profit

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Reference no: EM132308166

The Body Shop Sweaters Company sells hand-knitted sweaters. The company is planning to print a catalog of its products and undertake a direct mail campaign. The cost of printing the catalog is $25,000 plus $0.15 per catalog. The cost of mailing each catalog (including postage, order forms, and buying names from a mail-order database) is $0.20. In addition, the company plans to include direct reply envelopes in its mailings and incurs $0.25 in extra costs for each direct mail envelope used by a respondent. The average size of a customer order is $50, and the company’s variable cost per order (primarily due to labor and material costs) averages about 80% of the order’s value - that is, $40. The company plans to mail 200,000 catalogs. Below is the big picture of the steps in the breakeven analysis for The Body Shop Seaters:

Use MS Excel to develop a spreadsheet model to do and/or answer the following:

Use the Excel Data Table function to develop a table of the relationship between response rate and profit.

How does a change in the response rate affect profit?

Using either the “Goal-Seek” of “Solver” feature in Excel, determine the response rate at which the company break even

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?

Reference no: EM132308166

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