Reference no: EM132826272

Question - EXERCISE ON FINANCIAL ANALYSIS FORMARKETING DECISION MAKING

An important part of the analysis of alternatives facing business-to-business marketing decision makers is the financial analysis of these alternatives. This exercise is designed to give managers experience in handling the types of financial calculations that arise in some marketing situations.

1. You have just been appointed the product manager for the "FLEXO" brand of lathes in a large industrial products company. As part of your new job, you want to develop an understanding of the financial situation for your product. Your assistant has provided you with the following facts:

a. End-user purchase price $3,000.00

b. Distributor's margin 20%

c. Jobber's margin 20%

d. Wholesaler's* margin 15%

e. Direct factory labor $200.00

f. Raw materials $100.00

g. All factory and administrative $100.00 per unit (at a 1,000 overheads unit volume level)

h. Salesperson's commissions 10% of manufacturer's selling price

i. Sales force travel costs $ 20,000.00

j. Advertising $500,000.00

k. Total market for lathes 10,000 units

l. Current yearly sales of Flexo 2,100 units

* An agent who sells to the jobbers, who in turn sell to the distributors.

QUESTIONS -

1. What is the contribution per unit for the Flexo brand of lathes?

2. What is the break-even volume in units and in dollars?

3. What market share does the Flexo brand need to break-even?

4. What is the current total contribution?

5. What is the current before tax profit of the Flexo Brand?

6. What market share must Flexo obtain to contribute a before tax profit of $2 million?