Product X ie a consumer product with a retail price of $9.95. Retailer\'s margin
ID: 2819022 • Letter: P
Question
Product X ie a consumer product with a retail price of $9.95. Retailer's margins orn the product re 40% and wholeaalere margins are 8% (based on the selling price)-The market is $300,000,000 annualy (based on zetal salea); product X share Gin dollars) of this market is 17.3%. The fixed oosts involved in manufacturing Product X are $1,400,000 and the variable costs are $0.86 per unit. The advertising budget for Product X is $2,000,000. Miscellane- oue variable costs (egi shipping and handling) are $0.04 per unit. Salespeople are paid entirely by a 12% commission based on the manufacturer's selling price. Product man- ager's ealary and expenses are $90,000. Assuming that you are the manufacturer, caleulate the following 1. What is the unit margin (contribution) for Product X Gin $)7 2. What is Product X's break even volume? 3. What market share (based on retail sales) did Produet X need to break even? 4. What is Product X's (annual) net profit? 5. Calculate the increase in sales over the current volume nceded to maintain the current proit level if the manufacturer doubles its advertising expenditures. Calculate the increase in sales over the current volume needed to maintain the current profit level if the manufacturer lowers its price by 25%. Calculate the increase in sales over the current volume needed to maintain the cur- rent profit level ifthe manufacturer increases the sales force's commission to 15%. 6. 7. Calculations Guidelines: When solving problems: Round manufacturer, wholesale, and retail prices to the second decimal point e.g., $9.49) $3,625,769.64) Round sales volumes to whole numbers (e.g., 345,312 units) .Round sales revenues and net income (profits) to the second decimal point (C.g. . Do not round any other numbers When reporting solutions: Round prices, profits, and market shares to the second decimal point (c.g $9.95 and 57 32%) . Round sales volumes to whole numbers (e.g., 345,312 units)Explanation / Answer
As per rules I am answering the first 4 subparts of the question
1: First we need to find the selling price to the manufacturer
Wholesaler price = Retail price- retailer margin
= 9.95- 40%*9.95
=$5.97
Manufacturer price= wholesaler price- wholesaler margin
= 5.97- 8%*5.97
= $5.49
Variable cost per unit= Manufacturing cost + Miscellaneous cost+ sales commission
=0.86+0.04+12%*5.49
=1.5588
Margin contribution per unit= Selling price- Variable cost
= 5.49- 1.5588
= 3.9312
2: Break even volume = Fixed costs/ Contribution per unit
= (1400000+2000000+90000)/ 3.9312
=887769.6
Rounded off to
887770 units
3: Market share required to break even = Break even sales in units*Retail price/ Total market
= 887770*9.95/ 300000000
=2.94%
4: Present sales = 17.3%*300000000=51,900,000
Sales in units= 51,900,000/9.95
= 5216080
Net Income = Contribution – Fixed costs
= 5216080*3.9312 - (1400000+2000000+90000)
= $17,015,454
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