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# Washburn Case Essay

Questions

1 What factors are most likely to affect the demand for the lines of Washburn guitars bought by a first-time guitar buyer

The price is the major factor for this type of buyers, as the price falls, the demand will increase and vice versa Quality is also a factor for this buyer, the buyer may want to resell after the guitar lessons. They may think that quality will help them to play better bought by a sophisticated musician who wants a signature model Quality is the major factor because good quality will produce good sound Prestige brand is also the major factor for these buyers because the instrument play an important role to them The above are more important than price, therefore price is not the major factor for this type of buyers 2 For Washburn, what are examples of shifting the demand curve to the right to get a higher price for a guitar line (movement of the demand curve) An example of shifting the demand curve to the right to get a higher price is the product with insensitive, inelastic price, that is the Washburn signature guitars. Product with inelastic demand, price will only has a minor impact on the demand. pricing decisions involving moving along a demand curve

As the price drops, the quantity demand of the guitars increases. If the price is below \$345 for the new product, the demand curse will shift along to more quantity sold. 3 In Washburn’s factory, what is the break-even point for the new line of guitars if the retail price is BEP = FIXED COST/PPRICE –VARIABLE COST

\$349,
38,000/(349-204)=186 Units
\$389,
38,000/(389-204)=156 Units
\$309
38,000/(309-204)=232 Units
(d) if Washburn achieves the sales target of 2,000 units at the \$349 retail price, what will its profit be? Profit = (\$204 X 2,000) – 38,000 = 370,000
4 Assume that the merger with Parker leads to the cost reductions projected in the case.

Then, what will be the Fixed cost 38,000.00
40% reduce in rent (5,600.00)
New FC 32,400.00
Variable cost 145.00
Less 15% (21.75)
New VC 123.25
new break-even point at a \$349 retail price for this line of guitars 32,400/(349-123)=144 Units
(b) new profit if it sells 2,000 units?
Profit = (\$226 X 2,000) – 32,400 = 419,600

5 If for competitive reasons, Washburn eventually has to move all its production back to Asia, which specific fixed and variable costs might be lowered
If the assumption is China, the suburban living standard is low and most of the manufacture will move to this area. For fixed cost, the rent and quality control program will be lower. For variable costs, labor costs will be lower. what additional fixed and variable costs might it expect to incur? The training costs will expect to incur as skilled worker may be new and required training. For variable cost, shipping and duties costs will incur

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