You have just received an inquiry from Walgreens stores to develop and manufactu

Question

You have just received an inquiry from Walgreens stores to develop and manufacture 20 special designs for sale exclusively in Walgreens stores. The cards would be sold for $1.50 each, and Walgreens would pay Friendly Greeting $0.35 per card. The initial order is for 20,000 cards of each design. If the cards sell well, Mall-Mart plans to place additional orders for these and other designs. Because of the preestablished sales relationship, no marketing costs would be associated with the cards sold to Walgreens. How would you evaluate the desirability of the Walgreens proposal?

Explanation / Answer

Total cards designed =20000*20=400,000

Card sales realisation= 400000*1.5=$600,000

Less: cost=400000*0.35 =$140,000

Profit from sales =$460,000

It is advised to accept Walgreen proposal as it will result in profit.

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