Question

There is excitement in the air! The new UltraGuard flea collar is about to be introduced to the market. The collar will feature enhanced protection, increased longevity and is environmentally friendly. It will be priced at $9.00 and has unit variable costs of $4.15. The company expects to sell 49,800 UltraGuard collars during the next six months. Some of the sales will come at the expense of the current product, the PetArmor collar, priced at $6.20 with variable costs of $3.30. Projected sales for the PetArmor collar are 95,000 units (without the introduction of the UltraGuard). The market analyst estimates that the UltraGuard collar will cannibalize 19,350 PetArmor collars during the introductory 6 month period. The company is planning a sales promotion campaign to target veternarians at the time of the new product launch. The company is going to invest $53,550 in printed materials and samples. Calculate the breakeven sales volume necessary to justify the promotional campaign

Answer 1

Let the breakeven sales volume of UltraGuard be x
Hence,
(9-4.15)*x-19350*(6.20-3.30)-53500=0
=>x=(53500+19350*(6.20-3.30))/(9-4.15)
=>x=22601.03093