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.

To calculate the unit contribution for Avenir, we need to subtract the variable costs from the unit retail price.

Given:
Unit retail price = $1.00
Variable manufacturing costs = $0.09 per unit
Shipping costs, breakage, insurance, etc. = $0.03 per unit

Unit contribution = Unit retail price - Variable manufacturing costs - Shipping costs
Unit contribution = $1.00 - $0.09 - $0.03
Unit contribution = $0.88

Therefore, the unit contribution for Avenir is $0.88.

To calculate Avenir's break-even point, we need to determine the number of units Avenir needs to sell to cover its fixed costs.

Given:
Fixed manufacturing costs = $900,000

Break-even point (in units) = Fixed manufacturing costs / Unit contribution
Break-even point = $900,000 / $0.88
Break-even point ≈ 1,022,727 units

Therefore, Avenir's break-even point is approximately 1,022,727 units.

To calculate the market share Avenir needs to break even, we need to determine the percentage of the total market that Avenir must capture.

Given:
Total units sold by Avenir and its direct competitors = 20 million units
Avenir's market share = 24%

Market share needed to break even = Break-even point / Total units sold by Avenir and its direct competitors
Market share needed to break even = 1,022,727 units / 20,000,000 units
Market share needed to break even ≈ 0.0511
Market share needed to break even ≈ 5.11%

Therefore, Avenir needs a market share of approximately 5.11% to break even.

To calculate Avenir's profit impact, we need to subtract all the costs from the total revenue.

Given:
Total units sold by Avenir and its direct competitors = 20 million units
Avenir's market share = 24%
Unit contribution = $0.88

Revenue = Total units sold by Avenir and its direct competitors * Avenir's market share * Unit contribution
Revenue = 20,000,000 units * 24% * $0.88
Revenue ≈ $4,211,200

Total costs = Fixed manufacturing costs + Advertising budget + Product manager's salary and expenses + Salespeople commission + Shipping costs, breakage, etc.
Total costs = $900,000 + $500,000 + $45,000 + ($4,211,200 * 10%) + ($0.03 * 20,000,000 units)
Total costs ≈ $900,000 + $500,000 + $45,000 + $421,120 + $600,000
Total costs ≈ $2,466,120

Profit impact = Revenue - Total costs
Profit impact ≈ $4,211,200 - $2,466,120
Profit impact ≈ $1,745,080

Therefore, Avenir's profit impact is approximately $1,745,080.

If the advertising budget is raised to $1.5 million in 2013, we can calculate the number of units Avenir needs to sell to break even using the same formula as the break-even point calculation.

Given:
Fixed manufacturing costs = $900,000
Advertising budget = $1,500,000

Break-even point (in units) = (Fixed manufacturing costs + Advertising budget) / Unit contribution
Break-even point = ($900,000 + $1,500,000) / $0.88
Break-even point ≈ 5,963,415 units

Therefore, if the advertising budget is raised to $1.5 million, Avenir needs to sell approximately 5,963,415 units to break even.