Your company makes tennis rackets which you sell through a specialty shop. You instructed the shop owner whose policy is to realize 40% margin on anything s/he sells to sell them at $150.00 per racket. Your production cost and other expenses are below:
|
Factory Labor per racket |
$15.00 |
|
Materials per racket |
$20.00 |
|
Racket labels (per 5,000) |
$500.00 |
|
Racket design |
$20,000.00 |
|
Advertising |
$10,000.00 |
|
Shipping to the store |
$5,000.00 |
In addition to these expenses, you have negotiated an endorsement contract with Mr. Tiger Brown, your former roommate at The Celebrity Tennis Academy, who is now a fairly good professional tennis player. He charges $5.00 per tennis racket.
a. contribution:
sale price will be the cost at which it is sold to shop owner;
=> his sale price *( 1- his margin)
=>150*(1-0.40)
=>$90
following is the calulation of contribution:
| sales | $90 | |
| less: varialble costs | ||
| factory labor | 15 | |
| materials | 20 | |
| racket labels ($500/5000) | 0.10 | |
| promotion by Tiger brown | 5 | (40.10) |
| contribution per unit | $49.90 |
b.break even volume in units
=> fixed costs / contribution per unit
=> (20,000+10.000+5000) /49.90
=>701.40 units
=>701 units rounded off.
c.break even in dollars = fixed costs * sale price / contribution
=>35,000 * 90/49.90
=>$63,126.25.
Your company makes tennis rackets which you sell through a specialty shop. You instructed the shop...