WCOB
markets Exam 3 Study Guide

# Licensing agreements adidas negotiated contracts with

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Licensing Agreements Adidas negotiated contracts with small foreign firms to produce their shoes. Economic advantages May be paying fewer taxes (because they aren't paying any workers) Labor is cheaper Since Adidas doesn't own the factories, it keeps fixed costs Types of Costs Variable Cost – costs of production that are tied to and vary depending on the number of units produced. Increase and Decrease as production rises and falls. Fixed Cost – cost of production that don’t change with the number of unites produce. They occur even if sales aren’t made or we don’t produce. Total Costs – total of fixed and variable costs for the number of units sold Contribution per unit – difference between the price the company charges for a product and the variables costs. Break Even Point Point at which sales = expenses Profits = Zero Licensing agreements lower break even which makes the company more competitive How to calculate break even 1. Calculate the contribution margin cm = selling price - variable costs (fixed costs and profits) Variable (leather, rubber, etc) \$25 = \$100.00 - \$75.00 1. Calculate Break Even Point BE = total fixed costs ÷ contribution margin 8000 units = \$200,000 ÷ \$25 If fixed costs decrease, we need fewer units to break even. Can offer product at lower price in market place Sell at same price and make more money…Adi used licensing to reduce fixed cost and became more profitable. Downside: lose control: can lead to sweatshops and child-labor etc. David Glass(Wal-Mart, and KC Royals) Cost Volume Profit Analysis Potential Profit = Revenues - fixed costs - variable costs Revenue: 10,000 units x \$100 = \$100.00 \$1,000,000 Fixed Costs: \$200,000

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Variable Costs: 10,000 x \$75 = \$750,000 Potential profit = 1,000,000 - 200,000 - 750,000 Potential profit = 50,000 Criticism of Licensing Agreements If a competitor doesn't use licensing agreements then their break even point will be higher and they will not be able to compete Mostly focused on working conditions in overseas factories, including low wages and long hours, child labor, and unsafe working conditions Social Responsibility - a management practice in which organizations seek to engage in activities that have a positive effect on society and promote a public good. Environmental Stewardship - a position taken by an organization to protect or enhance the natural environment as it conducts its business activities America's Running Culture Running Culture begins in late 60’s Kenneth Cooper- Father of modern aerobics Jim Fixx – Dr. publishes “The book of running,” Steve PreFontaine - one of the best runner's in the world First to take athletic shoes and make them casual wear; prior to this, people would wear dress shoes to classes on college campus…he changed this First person to wear Nike shoes Frank Shorter - won the Marathon in the 1972 Olympics (likes beer and m and m’s) Let anyone run with him that wanted to
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