Assignment:
Merchant versus Agent Wholesaler Art Glass Productions, a producer of decorative glass gift items, wants to expand into a new territory. Managers at Art Glass know that unit sales in the new territory will be affected by consumer response to the products. But sales will also be affected by which of two wholesalers Art Glass selects. One wholesaler. Giftware Distributing, is a merchant wholesaler that specializes in gift items. The other, Margaret Degan & Associates, is a manufacturers' agent that calls on many of the gift shops in the territory. Art Glass makes a variety of glass items, but the cost of making an item is usually about the same-$5.20 a unit.
The items would sell to Giftware Distributing at $11.90 each-and in turn the merchant wholesaler's price to retailers would be $14.00-leaving Giftware with a $2.10 markup to cover costs and profit. Giftware Distrib-uting is the only reputable merchant wholesaler in the territory, and it has agreed to carry the line only if Art Glass is willing to advertise in a trade magazine aimed at gift store owners. These ads will cost $6.000 a year. As a manufacturers agent. Margaret Degan would cover all of her own expenses and would earn 8 percent of the $14.00 price per unit charged the gift shops. Individ-ual orders would be shipped directly to the retail gift shops by Art Glass-wing United Parcel Service. Art Glass would pay the UPS charges at an average cost of $2.00 per item.
In contrast, Giftware Distributing would anticipate demand and place larger orders in advance. This would reduce the shipping costs, which An Glass would pay, to about $.60 a unit. Art Glass's marketing manager thinks that Degan would only be able to sell about 75 percent as many items as Giftware Distributing-since she doesn't have time to call on all of the smaller shop. On the other hand, the merchant wholesaler's demand for $6,000 worth of sup-porting advertising requires a significant outlay. The marketing manager at An Glass decided to use a spreadsheet to determine how large sales would have to be to make it more profitable to work with Giftware and to see how the different channel arrangements would contribute to profits at different sales levels.
a. Given the estimated unit sales and other values shown on the initial spreadsheet, which type of wholesaler would contribute the most profit to An Glass Productions?
b. If sales in the new territory are slower than ex-pected. so that the merchant wholesaler was able to sell only 2.500 units-or the agent 1.875 units-which wholesaler would contribute the most to Art Glass's profits? (Note: Assume that the merchant wholesaler only buys what it can sell; i.e.. it doesn't carry extra inventory beyond what is needed to meet demand.)
c. Prepare a table showing how the two wholesalers' contributions to profit compare as the twangy sold vanes from 2.500 units to 4,500 units for the mer. chant wholesaler and 75 percent of these numbers for the manufacturers agent. Discuss these results. (Note: Use the What If analysis to vary the quan-tity sold by the merchant wholesaler, and the pro-gram will compute 75 percent of that quantity as the estimate of what the agent will sell.) For additional questions related to this problem. see Exercise 14-3 in the Learning Aid for WC with Bask Mar. limns. 11th edition.