Revenue increases calculated at $25 per can vs recommended price of $20 per can

Question

In this question, we are asked to calculate the total new revenues for the WIP program.

We are told that the cost of cans under the WIP program are set fo $20.

However, in the calculations, we take the non-WIP can sales to be sold at $25.

I am confused on the logistics involved: Does this mean that the customer under the WIP program is given a exemptionary privilege to purchase the can at $20 whereas the normal, non-WIP customer pays the standard $25 rate?

Additionally, because this is a baby formula producer, doesn't the WIP program only work for retailers in e.g. supermarkets? I'd have thought that the supermarket purchases from the producer at a specific unit price and then applies a mark-up to sell to the customer at a profit as per supply chain logistics.

My impression is that this has been simplified to assume only the producer supplies directly to the customer without a retailer or wholesaler involved.

Answer 1

Hi there,

I'll let Hagen (the creator of the case) better answer.

Just to check, did you scroll to the bottom of the case to the Q&A question? I *think* this has already been asked/answered!

Answer 2

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