Jessica James is considering a business venture—selling
custom-embroidered baseball caps from a pushcart kiosk at College
Mall. The caps will be available in 12 different colors and
one-size fits all. The caps’ unique feature is that almost any
name, phrase, or logo, can be stitched onto the cap while the
customer waits. Thus, a customer can obtain a cap with his or her
own name, monogram, special saying, or favorite logo in a wide
variety of thread colors, sizes, and fonts. Based on preliminary
market research and input from the franchising company, Jessica
plans on selling each embroidered cap for $20.
Jessica plans to acquire the necessary technology (two industrial
strength sewing machines hooked up to PCs with scanners and all of
the necessary software) by obtaining a franchise from Made to Order
Caps, Inc. Made to Order Caps, Inc., sells allof the necessary
equipment and technology and provides the inventory of caps and
other supplies. In addition, Made to Order Caps, Inc., trains
prospective franchisees such as Jessica in the basics of running
the business and operating the machines.
Jessica will need to buy the caps from Made to Order Caps, Inc.,
for $4 per cap and pay a royalty to the franchising company of $2
per cap sold. In addition, Jessica believes that each cap will use
about $2.50 worth of supplies (including thread, replacement of
sewing needles, machine maintenance, etc.). Finally, Made to Order
Caps, Inc., requires that each franchisee invest $250 per month on
leaflets and brochures to advertise the product.
Jessica discovers that College Mall would supply her with the
pushcart and all of the necessary equipment for proper display. The
license from the mall also allows Jessica to use several electrical
outlets and two telephone outlets. College Mall will pay for
Jessica’s electricity consumption, but she will have to obtain two
business telephone lines at a cost of $50 per line per month.
College Mall is willing to license the space and equipment to
Jessica on a monthly basis for $1,970 per month.
To generate maximum sales, Jessica wants to keep the pushcart open
for business from 10 A.M. to 10 P.M. Monday through Friday, and
from 10 A.M. to 6 P.M. on Saturday and Sunday. Jessica is willing
to put in 50 hours at the kiosk, and she can obtain additional
part-time help at $10 per hour (only one individual is required to
operate the business). Jessica’s only other significant expense is
setting up to accept credit cards. Jessica anticipates that 75% of
her sales will be credit card sales, and the credit card company
charges Jessica a fee of 2% of the selling price.
Required: (Assume that there are exactly four weeks per
month)
1. Calculate Jessica’s monthly breakeven point in baseball caps.
What does this translate to in revenue? 2. How much profit would
Jessica earn in a month if she sold 1,000 caps? How many caps would
Jessica have to sell to earn a target profit of $4,032 per
month?
3. Jessica has been toying around with how the quantity of caps she
can sell is likely to vary inversely with the selling price.
Jessica is keenly aware that the lower the price per cap, the more
caps she can sell and vice versa. She is determined to figure this
relationship out and find the best price. After conducting
extensive market surveys, Jessica believes that the local monthly
demand for embroidered baseball caps is as follows: per cap Demand
$20 300 $25 250 $28 220 $30 200 $32 180 $34 160 How does this piece
of information alter Jessica’s profit calculation? What price per
cap should Jessica charge to maximize profit? How much profit does
she earn at this price?
4. Jessica is almost done—she realizes that she forgot to include
taxes as part of her decision model. Jessica believes that combined
local, state, and federal taxes will be 25% of her profit before
taxes. Does this piece of information affect Jessica’s decision in
part (3)? Does this change the profit-maximizing price? Does it
change Jessica’s profit? 5. What do you think of Jessica’s business
venture?
Decision : It is better to Sell Cap @ $ 30 Each . Profit earned at this rate is comparatively higher as compared to other alternatives. So, jessica charge $ 30 each per cap, to earn high profit.
And the taxes on profit is not change the profit proportion of each alternative. so its better to sell the cap @ $ 30 per cap
Jessica James is considering a business venture—selling custom-embroidered baseball caps from a pushcart kiosk at College...
Sarah has been selling 5,000 baseball caps per month at $7.50 each. When she decreased the price to $4.50 she sold 6,000baseball hats. a.What is the demand elasticity? b.If Sarah's marginal cost is $7 per cap, what is her desired markup and what is her initial actual markup? c.Was decreasing the price profitable for Sarah's baseball caps business? Explain.
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