Question 6

SepatuGeylang Ltd has developed a new children shoe called “Kiddo”. The company expects to sell 200,000 pairs of this new shoe in the first six months after launch, and wishes to make a profit of $6m during that period. Costs are as follows: 

• Direct manufacturing cost: $10 per pair

• Variable production overhead cost: $4 per pair

• Fixed cost: $5.2m per annum

Required:

(a) Calculate the required sales price per pair if the company is to achieve the target of $6m profit in the first six months of sales.

(b) Calculate the break-even sales price per pair.

(c) The company is considering an alternative of fixing the sales price at $65 per pair and launching the shoe with a substantial advertising campaign over the six-month period, which will cost $3.8m. How many pairs of shoes would the company need to sell to achieve the target profit of $6m?

(d) In no more than 60 words, discuss two other possible ways to put a price on a product. What would be the impact on the price of the “Kiddo” shoes?