Cards unlimited buys trading cards of professional athletes (baseball, basketball, footb...

Cards unlimited buys trading cards of professional athletes (baseball, basketball, football, and hockey) from trading card manufacturers and then repackages and sells them to large retail chains. It has a contract with a card manufacturer called NBA Products. NBA Products is a wholly owned subsidiary of the National Basketball Association (NBA). NBA Products manufactures and distributes sports collectibles pertaining to the NBA. one NBA Products item is trading cards with NBA players’ pictures on the cards.

Cards Unlimited buys the cards from NBA Products for $0.08 per card and then packages and sells them to Wal-Mart. Cards unlimited’s contract with Wal-Mart states that Cards unlimited will sell only NBA cards within the United States to Wal-Mart.

Cards Unlimited promises to buy from NBA Products at least 750,000 cards and no more than 1 million cards per year. NBA Products promises to produce and sell no more than 1.5 million cards per year (to maintain the value of the cards). Wal-Mart has signed a three-year contract with Cards Unlimited to buy 900,000 NBA cards per year at a fixed price of $0.31 per card.

The variable costs of packaging the cards are $0.04, and the variable costs of selling and distributing them are $0.09 per card. Cards Unlimited’s fixed costs are $1.2 million, including administrative overhead, plant and equipment overhead, and other manufacturing, administration, and distribution costs. Its plant is designed to process 14 million cards per year, but it is currently only processing 10 million cards.

Several foreign retail outlets have expressed interest in purchasing the remaining 100,000 cards Cards Unlimited can purchase from NBA Products. Negotiations have been held with retailers in Australia, England, and Italy.

Australia: The Australian retailer would buy all 100,000 cards for $A0.43 (Australian dollars) per card. Cards Unlimited’s variable selling and distribution costs are $A0.14 (instead of $0.09 for U.S. sales). The Australian-U.S. dollar exchange rate is 1.34 Australian dollars per U.S. dollar.

England: The English retailer would buy all 100,000 cards for £0.21 (English pounds) per card. Cards Unlimited’s variable selling and distribution costs are £0.06 (instead of $0.09 for U.S. sales). The pound-dollar exchange rate is 0.65 pounds per U.S. dollar.

Italy: The Italian retailer would buy all 100,000 cards for 0.55 euros per card. Cards Unlimited’s variable selling and distribution costs are 0.16 euros (instead of $0.09 for U.S. sales). The euro-dollar exchange rate is 1.60 euros per U.S. dollar.

Required:

a. Should Cards Unlimited purchase additional cards from NBA Products for international distribution and in which country should it sell them? Show your analysis and estimate the expected financial effect this will have on Cards Unlimited.

b. Cards Unlimited agrees to purchase an additional 100,000 cards from NBA Products for international distribution. After this decision is made and the international sale contract is signed, Wal-Mart threatens to cut its card purchases back to 800,000 cards unless Cards Unlimited agrees to reduce its price to $0.30 per card. What should Cards Unlimited do? Support your recommendation with a numerical analysis.