Exercise House manufactures and sells a home exercise kit. The kit is sold via 3

Question

Exercise House manufactures and sells a home exercise kit. The kit is sold via 30-minute televised commercials that run on periodic Saturdays. Below are typical results for a Saturday campaign, assuming 3,750 units were actually sold. However, volume has been known to fluctuate from 3,000 to 4,500 units. Prepare a flexible budget scenario, assuming volumes of 3,000, 3,500, 4,000 and 4,500 units. If Exercise House wants to at least cover costs at volumes of 3,500 units and above, what is the minimum selling price per kit? Exercise House Expense Report For a Typical Campaign Selling 3,750 Units Variable expenses: Home exercise kit Shipping and handling Toll-free phone Credit card fees Miscellaneous items 138,750 20,625 7,500 15,000 28,125 $210,000 Total variable expenses Fixed expenses TV commercial Actors and models Studio rental $2,500 11,250 37,500 $161,250 Total fixed expenses Worksheet 7 Exercise House Flexible Expense Budget/Alternative Scenarios For a Typical Campaign 3,000 units 3,500 units 4,000 units 4,500 units Variable expenses: Home exercise kit Shipping and handling Toll-free phone Credit card fees Miscellaneous items Total variable expenses Fixed expenses TV commercial Actors and models Studio rental Total fixed expenses Total expenses

Explanation / Answer

per unit 3000 3,500 4000 4,500 units units units units Variable expenses Home exercise kit (138750/3750) 37 111000 129500 148000 166500 Shipping and handling (20,625/3750) 5.5 16500 19250 22000 24750 Toll-free phone (7500/3750) 2 6000 7000 8000 9000 Credit card fees (15000/3750) 4 12000 14000 16000 18000 Miscellaneous items (28,125/3,750) 7.5 22500 26250 30000 33750 total variable expense 56 168000 196000 224000 252000 fixed expenses TV commercial 112,500 112,500 112,500 112,500 112,500 Actors and models 11,250 11,250 11,250 11,250 11,250 studio rental 37,500 37,500 37,500 37,500 37,500 total fixed expenses 161,250 161,250 161,250 161,250 161,250 total expenses 329,250 357,250 385,250 413,250 minimum selling price per kit will be 357,250/3500 102.07

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