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- Washburn Guitars - Case Study Example

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Price of other guitar; the demand for Washburn guitars by a first time buyer will be affected by the price of other companies’ guitar prices (Hartley and Rudelius, 2010). New buyers are most likely to consider other companies’ guitar as a complementary of Washburn buyer…
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Case Study - Washburn Guitars
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1(a) First time guitar buyer; Price of other guitar; the demand for Washburn guitars by a first time buyer will be affected by the price of other companies’ guitar prices (Hartley and Rudelius, 2010). New buyers are most likely to consider other companies’ guitar as a complementary of Washburn buyer. This is because his need for a guitar is to play music, and they have no brand loyalty to Washburn guitar as a product.
Future prices; the expected price of a Washburn guitar in the future is likely to influence the demand of the guitar currently. If the buyers expect the price of the guitar to increase in the days to come, they are likely to buy the guitar at the current prices now. Also, if the buyers expect the prices of the guitars to decrease in the future, they are likely to wait until the day prices come down in the future which decreases the demand of the guitars at the current time.
Taste and preference of the buyer; the buyer buying behavior is likely to be influenced by the current taste of product in the market and the product of his preference. A Washburn guitar as a choice by first time buyer is likely to be influenced by current taste and preference of various guitars from different companies.
Income level of the buyer; the income level of the buyer will determine if he will buy the product or not (Hartley and Rudelius, 2010). If the buyer income level is low, he is likely to buy a cheaper guitar from a different company. This is because the buyer will consider that the guitar will perform the same function a Washburn guitar can perform.
(b) Sophisticated musician
Quality; the quality of the guitar will influence the choice of the guitar a sophisticated musician will go for. A sophisticated musician will buy a Washburn guitar if it is of the right quality he is looking for.
2(a) Examples of shifting the demand curve to the right to get higher prices;
Advertising; Washburn factory can undertake advertisement programs of its guitars in the market to influence the taste and preference of consumers towards buying their guitars (Hartley and Rudelius, 2010). This will result in an increase in demand that will shift the demand curve to the right.
Public relations; if Washburn factory carries out public relations by way of educating potential consumers how to play the guitar. This will in turn get the potential consumer build preference for Washburn guitars when they go to buy guitars.
(b) If Washburn factory increases the prices of the guitars, the decision will be along the demand curve. The price will be above the equilibrium price. The factory can lower the prices along the demand curve by setting the prices below the equilibrium price.
1. (a) Price $349.
Fixed cost = (14000+4000+20000) = $38000
Variable cost = [25+ (15*8)] = $145
Under break even point, the factory will earn no profit or suffer any loss. Thus, the profit will amount to zero (Hartley and Rudelius, 2010).
Profit = (price- variable cost)* (quantity – fixed cost)
Quantity = (fixed cost+ profit)/ (price- variable cost)
Profit = (349-145) (q-38000)
Q = (38000+0)/ (349-145)
Q = 186 guitars
(b) $389;
Quantity = (38000+0)/ (389-145) = 156 guitars
(c) $309;
(38000)/ (309-145) = 231 guitars
(d) (2000*164)-38000 = $29000
4 (a) new rent and taxes costs = 60%*14000 = 8400
New direct labor = 15*85% = 12.75 hrs per unit or 13.15 hrs
Labor cost per unit = 13.15*8 = $105.2
Fixed cost = 8400+ 4000+ 20000 = 32000
Variable cost = 25+105.2 = 130.2
B.E.P = (32000)/ (349-130.2) = 147 guitars
(b) 2000 = (32000+p)/ (349-130.2)
437600 = 349+ p
Profit = $437251
5 (a) The fixed cost that is likely to be lowered is that of rent and tax. This is because the cost of rent changes with the location of a premise and tax regimes are different in different countries. Variable cost is likely to change is that of direct labor, this is because the cost of labor is different in different countries.
(b) The fixed cost that is likely to increase is that of management and quality control program because the salaries of top management will increase to cater for foreign allowances. The cost of material is likely to change because the transport cost incurred will increase to transport the material to Asia.
Work cited
Hartley, K. and Rudelius (2010). Marketing: The Core. 4th edition, London: McGraw-Hill Companies Inc. Read More
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