Packer Stoves Inc. is designing a commercial style stove for residential use. The team developing the specifications, cost, and pricing decisions includes production, accounting, engineering and marketing.
The stove includes a warming drawer, broiler unit, and high BTU burner. With these special features, Packer Stoves Inc. believes it can sell the stoves for $4,700. Packer Stoves Inc. desires to earn a 25% profit on each stove. Variable costs are $2,900 per stove and fixed costs are $1,800,000.
Download this Excel spreadsheet and use it to present your calculations and answers to the questions below:
- Using cost+ pricing calculate the price, given the cost and profit information.
- Calculate the Target cost per stove. How many stoves must Packer Inc. sell to meet the target cost?
- If Packer decides only 2000 stoves can be sold at $4,700 and, therefore, decides to eliminate the broiler unit thereby saving $650 per stove. With this feature dropped it is estimated that 2,600 units can be sold for $4,000. Will Packer be able to produce the stove at the new target cost?