Q1.

Based upon the financial results on tab one and assuming continued demand as is, is it

financially worthwhile to continue to retail the T-Shirts assuming nothing changes? Discuss and

explain your decision by referencing the financials provided to support your decision.

The merchandise inventory turnover ratio assists to measure how often the inventory

balance is sold during the period. Given a turnover ratio of 1.17, the calculation suggests that that

it is possible to move the inventory with relative ease.

The total assets turnover ratio is important in assessing how the business utilizes existing

assets to generate revenue. This is computed by dividing the assets to total sales. A higher ratio

concludes that the business proficiently utilizes its assets. In this case, a ration of 5.05 indicates

that the business efficiency in utilizing its assets is proficient and sustainable.

The return on assets measures efficiency by comparing how profits are generated by

utilizing the current resources. This is computed by dividing the net income by total assets. An

11.8% return on assets is sustainable.

It is clear that the business can perform to meet the basic financial targets. Therefore, it is

financially worthwhile to continue the T-shirt sales.

Q 2. Tab 3 (Ch. 14 8e) shows the demand based on data collected by another vendor in another

city for T-shirts projected from $ 5-$ 12 with a starting point of $ 10 introduced in the market

place.

a) Excluding fixed and variable costs, which price point yields the highest revenues?

At $ 8 pricing, the T-shirts sales maximize revenue with total revenue of $ 616 from 77 units

sold.
 2

b) What price points(s) yields the highest profit? Explain. Provide the specific financial

outcomes to support your answer.

The pricing at $11 and $ 12 yield the maximum profits as shown below.

Pricing $ 11 $12

Units Sold 49 42

Total revenues $ 539 $ 504

Less variable Cost $ 245 $ 210

Less Fixed costs $ 271 $271

Net profit $ 23 $ 23

c) Assuming the data in tab 3 is likely to be similar in Tampa, given the elasticity of demand

at a profitable point, which one price would you chose to use as a standard, everyday

price point? Explain your answer based upon pricing principles and/or covered in the

book.

The optimum pricing is to sell a single T-shirt at $ 10.

The pricing principle objective is profit maximization. At this price, it is economically

feasible to sell the T-shirts and make profit. This is a cost plus principle based on the

consideration of variable and fixed prices to achieve a profitable selling price. By considering

both fixed and variable costs, it is only profitable to optimize prices at $ 10.
 3

Q3. Tab 3 – pricing (Ch 14) At what price point does consumer price sensitivity change that

may suggest shifting price strategy? Explain using data points and concepts covered in book

to support your answer.

The law of demand states that if all other market factors remain constant, a relative price

increase leads to a drop of demand. For the T-shirt business, it is important to note that the

market demand is elastic meaning that a small increase in price significantly affects the

demand levels. The price elasticity of demand is the percentage change in quantity demanded

divided by the change in price. In this case, at $ 9, the highest elasticity at 1.45 points

indicates that at this point, consumer behavior changes considerably with buyers considering

the product price before purchase. At this point, it is important to consider a thoughtful

pricing strategy that will satisfy the profit maximization objective considering the change in

market demand.

Q4. In order to improve the financial position of your retailing operation –nhow might you

alter your merchandise and/or pricing strategies? Input figures into the highlighted subset tab

areas to experiment with different scenarios. Provide the financial results(copy/paste) and

explain why your projections may be reasonable and effective at creating consumer demand

in a financially viable manner.