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Smith S Home Food

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Smith S Home Food
Solution for case: Smith’s Home Foods.
Question One
Smith’s Country Ham has been operating for 25 years in North Carolina in the wholesale food division, targeting restaurants and fast food chains. In order to increase turnover and therefore revenue, Smith’s decides to introduce a new product line: Smith’s Home Food. A product line containing 11 packages sold to households and including all kinds of foods: meat, vegetables, fruits etc. lasting for a period of 4 months. The prices of these packages range from $655 to $1532 ($1000 on average). These packages require a freezer and thus Smith provided the sale of freezers for customers that didn’t own any. Also, it is highly important to mention that Smith gave all its customers the possibility of financing all of its goods; packages and freezers.
Through this new division, Smith is not only selling food and freezers; it is actually providing its customers with high convenience! Buyers no longer have to run to the market to get any kind of foods, as Smith includes everything in the packages. Also, since they will be buying in large quantities they will be benefiting from lower prices, and will escape any rise in market prices during this 4 months duration.
Question Two
As for problems for this strategy, I think Smith’s should reconsider its sources for advertising in order to acquire higher profile customers that are more eligible for its financing options. It should also extend its product mix to include other packages with different duration (more and less than 4 months).
Question Three
P=$1000
COGS= 48%= $480
Delivery Charge= $30
Commission Cost= $125
AVC= CPGS + Delivery + Commission= 480+30+125= $635
UCM= 1000-635= $365
Break even: Revenue= Total Cost
Revenue= 1000 x Q
Total Cost= TFC + TVC= (57,000/3) + AVC x Q (we divide 57,000 by 3 to get fixed cost for 4 months)
1000xQ= 19,000 + 635 x Q
365Q=19000
Q= 19000/365
Q=52

To break even, Smith’s must sell 52 packages each 4 month.
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