Should we include trade promotions as fixed cost

Reference no: EM133664765

Question

Should we include trade promotions as fixed cost? Why or why not? The supply chain for this product will be: Nature Inc Retailer End consumer. The Retailer margins are 30% and total variable costs per unit for Nature Inc. are expected to be $ 3.63. The CEO, CMO, and the finance chief want you to know that the company has already spent money ($600,000) to conduct pre-launch marketing research and their policy is to treat that expense as a fixed cost for Year 1. Further, they are allocating $6.38 million for advertising for Year 1. Your past research suggests that this will produce 37% awareness overall. For trade promotions, they are allocating $8.15 million for Year 1. A survey of supermarket buyers suggests that this amount should lead to an ACV of 48%. Your company spent similar amounts of the first two products and has been able to achieve ACV of 60% for those products in the short span of five years.

Reference no: EM133664765

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