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April 20, 2014

Homework Help: Break-Even Analysis

Posted by Andrea on Monday, October 1, 2012 at 11:16pm.

Given:
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.

EXERCISES

1. What is the unit contribution for Avenir?

Using Unit contribution = selling price - variable price is the correct answer:

$0.41

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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