Many luxury sheets cost less than $200 to make but sell for more than $500 in re

Question

Many luxury sheets cost less than $200 to make but sell for more than $500 in retail stores. Some cost even more

dash–

consumers pay almost $3,000 for Frett'e "TangeriPizzo" king-size luxury linens. The creators of a new brand of luxury linens, called Boll & Branch, have entered this market. They want to price their sheets lower than most brands but still want to earn an adequate margin on sales. The sheets come in a luxurious box that can be reused to store lingerie, jewelry, or other keepsakes. The Boll & Branch brand touts fair trade practices when sourcing its high-grade long-staple organic cotton from India.

The company calculated the price to consumers to be

$460460.

If the company decides to sell through retailers instead of directly to consumers online, to maintain the consumer price at

$460460,

at what price must it sell the product to a wholesaler who then sells it to retailers? Assume wholesalers desire a

88

percent margin and retailers get a

2020

percent margin, both based on their respective selling prices.

The retail margin is

$

Explanation / Answer

Solution

Final price to consumers (Maximum Retail Price) = $460

Wholesaler Margin = 8%

Retailer Margin = 20%

Margin of Retailers = ($460*20%) = $92

Cost to Retailers or sale price of Wholesalers = ($460 - $92) = $368

Margin of Wholesalers = ($368*8%) = $29.44

Cost to wholesalers = ($368 - $29.44) = $338.56

Hence,

1) - Selling price by frette to wholesalers = $338.56

2) - Then wholesalers will sale to retailers at $368 earning $29.44 (8%) Margin

3) - Then Retailers at the end sale to consumers at $460 earning $92 (20%) Margin.

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