Kristen's Pen Company sells 400,000 pens a year, at a price of $5 each. Kristen sells the pens to retailers who then sell to consumers. The pens arc priced at $10 at retail. Kristen earns a markup of 30%, and has total fixed costs of $250,000.
1.1 Kristen decides to lower her prices by 20% in order to get more people to buy. What % increase in the number of pens sold is required for Kristen to make up for the lower margins?
1.2 Retailers want Kristen to spend more money advertising. If Kristen agrees to spend an additional $50,000 on advertising, but doesn't have to lower her prices as in 1A, what is the % increase in the number of pens sold is required for the additional advertising to be recovered?
1.3 If Kristen has an opportunity to sell an extra 100,000 pens, but at a lower price of $4 each, what is the maximum annual fee that Kristen should pay to take advantage of this opportunity?
Connor Donuts sells spicy donuts for $5 each. The company makes a net profit of $10,000 a year, paying no income tax. The donuts costs $2 each to make.
Typically, Connor sells 25,000 donuts a year. Connor wants to sell a second donut variety, the bacon and cheese donut. He figures he can sell this new donut at a price of $7 each, and the new donut will earn him a 50% markup.
He estimates he will sell 5,000 of these new donuts, but he will have to invest $8,000 in packaging and design. In addition, he expects that 25 % of the buyers of these donuts would have bought the spicy kind anyway.
2.1 What is the change to Connor's net profits if he introduces the bacon and cheese donuts?
2.2 What is the minimum price he has to charge for the new donuts in order to make the same net profits as before?