Question

Exercise 3 (25 points) Marketing Scenario for a retailer: You sell a particular product line. Given the information below, answer each of the questions asked. You are given the following information (2017 Annual): Price per Unit $25.00 Advertising $15,000 Packaging per unit $ 5.00 Direct Labor per unit $ 8.00 Depreciation $25,000 Royalties per unit $ 2.00 Plant and Equipment Rent $50,000 Total Units Sold 10,000 Your firm's Total Assets are $400,000 with total equity of $75,000 To answer the following questions, please use the Contribution Margin PRICE PER UNIT METHOD. (Hint: In this exercise you don't need COGS: you are using variable cost per unit from the Price per unit method) a. Set up your Price Per Unit Performance template (See slide showing the - Total Sales vs. Price per Unit Method) and calculate CM per unit. Show also show your fixed expenses. b. Calculate your firm's Breakeven Point in Dollar Sales and Break even point in Units Sold

Answer 1

PRICE PER UNIT METHOD $ $ 25 PRICE PER UNIT Variable cost per unit: Direct labour per unit 8 5 Packaging per unit Royalties per unit CONTRIBUTION MARGIN ($) 2 15 10 Fixed Expenses: Advertising Depreciation Plant and Equipment Rent 15,000 25,000 50,000 90,000 Calculations: Contribution margin $ /Unit divided by price per unit 10/25 * 100 = 40% Breakeven Sales ($) = Fixed cost/Contribution margin = 90000/0.40 = 225000 Breakeven Sales (Unit) = Fixed cost/Contribution margin($) 90000/10 = 9000 units Breakeven sales is the point where there in neither a profit nor a loss. The The company is able to cover its fixed and variable cost at breakeven point, beyond this point the company will be earning profit.