Posted by Andrea on Saturday, September 29, 2012 at 2:12pm.
Jay Letterman has just (year: 2012) become product manager for Avenir. Avenir is a consumer product with a unit retail price of $1.00. Retail margins on the product are
33%, while wholesalers take a 12% margin.
Avenir and its direct competitors sell a total of 20 million units annually; Avenir has 24% of this market.
Variable manufacturing costs for Avenir are $0.09 per unit. Fixed manufacturing costs are $900,000.
In 2012, the advertising budget for Avenir was $500,000. The Avenir product
manager's salary and expenses total $45,000. Salespeople are paid entirely by a 10% commission. Shipping costs, breakage, insurance, and so forth are $0.03 per unit.
1. What is the unit contribution for Avenir?
Using Unit contribution = selling price - variable price is the correct answer:
2. What is Avenir's break-even point?
Is the correct answer: 3,524,391 units
3. What market share does Avenir need to break even?
Is the correct answer: 17.62%
4. What is Avenir's profit impact?
Is the correct answer: $523,000
5. In 2013, Industry demand/potential is expected to increase to 24 million units.
Jay Letterman is considering raising his advertising budget to $1.5 million to
capture a larger portion of this increased demand.
a. If the advertising budget is raised, how many units will Avenir have to sell
to break even?
Is the correct answer: 5,963,415 units I used the formula fixed cost / unit contribution and did this similar to question 2 but changed the advertising cost.
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