Entrepreneurship and Small Business Management

Product Planning

Manufacturers can study the cost of making and selling products to find out which products are contributing to their profits and which are not. For each product, a manufacturer analyzes the costs of production, distribution and sales, and advertising and compares this to the product's sales.

For example, suppose a product's sales are $450,000. The costs related to making and selling the product are given as a percent of sales: production-23 percent, distribution and sales-19 percent, and advertising-25 percent.

To determine what percentage of sales are kept as profit, add all the cost percentages associated with making and selling the product and subtract that total from 100 percent:

23% + 19% + 25% = 67% 100% - 67% = 33%

Figure profit in dollars by multiplying total dollar sales by the percent profit: $450,000 x 33% = $148,500

Use the information in the chart to answer questions 1-10.

1.		What percentage of the sales from product A are left as profit?
			A)	61%
			B)	50%
			C)	39%
			D)	41%
2.		What is the profit in dollars from product A?
			A)	$117,000
			B)	$142,000
			C)	$150,000
			D)	$183,000
3.		What percentage of the sales from product B are left as profit?
			A)	7%
			B)	71%
			C)	74%
			D)	13%
4.		What is the profit in dollars from product B?
			A)	$50,000
			B)	$17,000
			C)	$355,000
			D)	$35,000
5.		What percentage of the sales from product C are left as profit?
			A)	60%
			B)	48%
			C)	40%
			D)	74%
6.		What is the profit in dollars from product C?
			A)	$14,580
			B)	$97,200
			C)	$145,800
			D)	$19,770
7.		Which of the three products makes the least amount of money for the company?
			A)	product A
			B)	product B
			C)	product C
			D)	All the products are equally profitable.
8.		Which of the three products is the most profitable based on the dollar amount of profits?
			A)	product A
			B)	product B
			C)	product C
			D)	All the products are equally profitable.
9.		Which of the three products is the most profitable according to the percent of sales?
			A)	product A
			B)	product B
			C)	product C
			D)	All the products are equally profitable.
10.		Does the product with the highest sales volume have the highest profit? Why or why not?
			A)	Yes, because the product with the highest sales volume is always the one with the highest profit.
			B)	No, because the amount spent to distribute, sell, and advertise that product is very large.
			C)	Yes, because more money is spent to advertise the other products.
			D)	No, because more money is spent to produce this product than is spent to produce the other two.

Use the following information to answer questions 11-15.

11.		What percent of Kyloh's sales was spent for advertising?
			A)	55.9%
			B)	42.3%
			C)	37.2%
			D)	44.6%
12.		Assuming that 30 percent of Kyloh's sales paid for sales and distribution and 10 percent paid for production, what percent of Kyloh's sales went to profit?
			A)	15.4%
			B)	55.4%
			C)	62.9%
			D)	22.5%
13.		What percent of Tresses's sales was spent for advertising?
			A)	25.6%
			B)	32.9%
			C)	17.8%
			D)	20.7%
14.		Assuming that 30 percent of Tresses's sales paid for sales and distribution and 10 percent paid for production, what percent of Tresses's sales went to profit?
			A)	60%
			B)	32.9%
			C)	39.3%
			D)	19.3%
15.		Does Kyloh or Tresses make more money?
			A)	Kyloh
			B)	Tresses
			C)	Both are the same.
			D)	Neither is profitable.

Retailers can review which products to carry by calculating and analyzing the gross margin. To calculate gross margin, multiply the dollar markup by the number of units sold. For example, if a store carries a product that costs the business $3.12, retails for $6.79, and has unit sales of 220, the gross margin on that product would be calculated as follows:

Retail Price - Cost = Markup $6.79 - $3.12 = $3.67

Markup x Units = Gross Margin $3.67 x 220 = $807.40

16.		Currently, a drugstore sells a can opener for $7.99; the drugstore pays $3.28 per can opener. What is the markup on each can opener?
			A)	$3.22
			B)	$4.08
			C)	$4.71
			D)	$4.59
17.		The can opener has unit sales of 651. What is the gross margin for the can opener?
			A)	$2209.76
			B)	$3066.21
			C)	$2096.22
			D)	$3441.75
18.		The current manufacturer of the can opener is discontinuing the product. Another manufacturer makes a similar can opener and charges $3.84 for each one. Assuming the sales remain the same, what would be the gross margin if the drugstore decides to buy the can openers from the new manufacturer and still sell them for $7.99?
			A)	$2701.65
			B)	$3066.21
			C)	$2209.76
			D)	$1498.80
19.		What would be the difference in gross margins between when the drugstore could buy can openers for $3.28 and when it would buy them for $3.84?
			A)	$1567.41
			B)	$609.23
			C)	$364.56
			D)	$419.01

A women`s apparel manufacturer that sells its goods directly to the consumer expanded its catalog offerings two years ago to include men`s clothing. After studying the line graph that depicts the sales of men`s apparel, choose which of the following statements is true.

20.		Sales of Men`s Clothing, Three Years Data Sales for Year 1 $120,000, Sales for Year 2 $240,000, Estimated Sales for Year 3 $380,000
			A)	Sales from men
			B)	Sales increased 50% fromYear 1 to Year 2.
			C)	There is a positive sales trend occurring in men
			D)	The graph does not indicate customer support of the addition of men