Reference no: EM131514400
1. Executives of Vitamin, a pharmaceutical manufacturer, are preparing to introduce Betatron, a new vitamin into the market. The following cost information pertains to Betatron:
Chemical compound...........................$1.25/bottle
Packaging/labeling..............................$0.35/bottle
Developer royalties.............................$1.00/bottle
Advertising and promotion..................$675,000
Vitamin overhead................................$500,000
Selling price per bottle to distributor....$9.00
Calculate the following:
a) Contribution per bottle
b) Break-even volume in bottle and dollars
c) Net profit if 1 million bottles are sold
d) Necessary unit volume to achieve a $200,00 profit
2. Satellite Imaging (SD) is considering launching a new satellite receiver that will be sold through major electronic retailers in the U.S. The initial investment that SD will need to invest if they develop the Xgen1 is $7.8 million. Research suggests that high-end electronic consumers are willing to pay $695 for the HD receiver/DVD recorder. The mark-up for retailers is 28% on selling price, while wholesalers earn a margin of 9%. Other data for the Xgen1 are as follows:
Advertising/Promotion...................................$875,000
Overhead.......................................................$533,000
Packaging......................................................$4.865/unit
Components...................................................$197.56/unit
Assembly of components...............................$92.56
Supplemental goods (manual, cables, etc)....$3.292
Calculate the following:
a) Retailer cost
b) Wholesaler cost
c) Contribution per unit
d) Unit gross margin
e) Break-even unit volume
f) Suppose that SD is considering the possibility of decreasing the retail selling price by 10%. How many additional unit go Xgen1 will need to be sold to achieve the same level of contribution before the price decrease? Under the current price structure the company expects to sell 15,000 units.
3. Product managers at General Grains were reviewing pricing and promotional plans for next year and were trying to decide between two alternatives in hopes of increasing the sales volume of their snack line. The two products, FiberBar and FiberBar with Fruit, have seen sales decreases in the past two years. The two alternatives being considered include a price decrease or an increase in the promotional spending. Below is a summary of last year's volume, price, and costs for the two products.
FiberBar FiberBar w/Fruit
Unit Price $1.098 $1.296
Unit Variable Cost 0.523 0.877
Unit Contribution 0.575 0.419
Unit Volume 1,500,000 1,000,000
The alternative being considered would call for a 10% reduction in the price of each unit, or an increase in advertising by $150,000.
a) What increase in unit and dollar sales will be needed to recoup the additional advertising expenditures for FiberBar and FiberBar w/Fruit?
b) What increase in sales dollars must be produced to cover each $1.00 of additional advertising expenses?
c) What increase in unit and dollar sales will be necessary to maintain the level of net marketing contribution if the price of each product is reduced by 10%?