Product X is a consumer product with a retail price of $8.95. Retailer’s margins on the product are 20% (based on the selling price to consumers) and wholesaler’s margins are 12% (based on the selling price to retailers). The size of the market is $250,000,000 annually (based on retail sales); the current market share for Product X (in dollars) of this market is 19%.
The fixed costs involved in manufacturing Product X are $2,200,000 and the variable costs are $0.76 per unit. The advertising budget for Product X is $1,600,000. Miscellaneous variable costs (e.g., shipping and handling) are $0.14 per unit. Salespeople are paid entirely by a 12% commission based on the manufacturer’s selling price. Product manager’s salary and expenses are $120,000.
Assuming that you are the manufacturer, calculate the following (5 pts each):
1. What is the manufacturer’s unit margin (contribution) for Product X (in $)?
2. What is Product X’s break-even volume?
3. What market share (based on retail sales) does Product X need to break even?