Question

Product Z is sold to wholesalers for $5.43 and sold to end consumers for $9.99. The size of the market is $34,000,000 annually (based on retail sales); product Z’s share (in dollars) of this market is 28%. The fixed costs involved in manufacturing and managing Product Z are $1,200,000 and the variable costs involved in manufacturing and managing Product Z are $0.91 per unit. The advertising budget for Product Z is $1,000,000. Salespeople are paid entirely by an 8.5% commission based on the manufacturer’s selling price. Product Z’s manufacturer is considering three alternative strategies for increasing sales: increasing their ad spend, lowering their price, or increasing the sales commission.

1. Calculate the total sales volume (in units) needed to maintain the current profit level if the manufacturer doubles its advertising expenditures.

2. Calculate the market share needed to maintain the current profit level if the manufacturer doubles its advertising expenditures.

Answer 1

Answer