AFMD

Margin Analysis - Husk Inc.

Photo of corn in it's husk

Husk Inc. is Iowa's leading manufacturer of corn-related novelties and paraphernalia. Husk has decided to break into the lucrative corn market of Nebraska gradually. They plan on introducing Colonel Kernel, the talking corn on the cob, to the Nebraskan market.

After negotiating with Nebraskan retailers, Husk expects the average retail price to be around $8. The dealer margins are estimated to be 25%. The cost of manufacturing per unit is $.90 for the parts, $.50 for assembly, $.75 for finishing, and $.35 for shipping.

Also, a rival vegetable novelty company, Tatercorp, courts the same retailers with a singing potato Spuddy Waters. Tatercorp expects Spuddy Waters average retail price to be $10. However, the dealer margins are only 23% and the cost of manufacturing is higher. It costs Tatercorp (per unit) $1 for the parts, $.50 for assembly, $.50 for finishing, $.50 for song rights, and $.40 for shipping.

  Colonel Kernel Spuddy Waters
Retail Price $8.00 $10.00
Manufacturer's Selling Price 6.00 7.70
Variable Cost 2.50 2.90
Retailer's Unit Contribution 2.00 2.30
Manufacturer's Unit Contribution 3.50 4.80

Retailers have an incentive to sell the competitive product rather than Colonel Kernel; however, Colonel Kernel will have a price advantage with consumers.