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Establish unit costs
|
Per unit |
| Sales |
€ 1.40 |
| Variable cost (€1.40 x 45%) |
€ 0.63 |
| Contribution (€1.40 x 55%) |
€ 0.77 |
| Fixed cost (€1.40 x 25%) |
€ 0.35 |
| Profit (€1.40 x 30%) |
€ 0.42 |
Check capacity to establish the opportunity cost
| Current capacity |
500,000 |
| Full |
625,000 |
| Want |
650,000 |
| Short |
25,000 |
|
|
| Establish contribution per unit |
|
| Sales |
€ 1.40 |
| Variable cost |
€ 0.63 |
| Contribution |
€ 0.77 |
|
|
| Opportunity cost (25,000 x €0.77) |
€ 19,250 |
Establish the selling price by including, opportunity cost, additional costs and agreed profit.
| Opportunity cost (25,000 loaves x 0.77) |
€ 19,250 |
| Extra fixed cost |
€ 30,000 |
| Total extra costs |
€ 49,250 |
| Total number of units to share these costs |
150,000 |
| Extra costs per unit (49,250/150,000) |
€ 0.33 |
| Variable costs |
€ 0.63 |
| Agreed profit |
€ 0.20 |
| Selling price |
€ 1.16 |
Qualitative issues to be considered by a retailer considering 'private label' items
- Will the image of the outlet be affected? as private label can be considered inferior by some customers.
- Will sales of branded items be affected?
- Will staff be able to cope with the strategy on a day to day basis?
- The quality of the products produced by the bakery in the retailers name.
- The reliability of the bakery.
- Will new customers be attracted to the store?
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