Question

2. Diversified Citrus Industries (DCT) is a manufacturer who sells to wholesalers who sell to retailers. After spending 300,000 for research and development (investment or sunk oosts), chemists at DCI have developed a new breakfast drink The drink, called Zap, will provide the consumer with twice the amount of vitamin C currently available in breakfast drinks. Zap will be packaged in an 8-ounce can and will be introduced to the breakfast drink market, which is estimated to be equivalent to 21 million 8-ounce cans nationally. One major management concern is the lack of funds available for marketing. Accordingly, management has decided to use newspapers (rather than television) to promote Zap volume. Newspaper advertising will carry a coupon that will entitle the consumer to receive S0.20 off the price of the first can purchased. The retailer will r Industries. Past experience indicates that for every five cans sold during the introductory year, one coupon will be returned. The cost of the newspaper advertising campaign (excluding coupon retuns) will be S250,000. Other fixed overhead costs are expected to be $90,000 per year. Management has decided that the suggested retail price to the consumer for the S-ounce can will be $0.50. The only unit variable costs for the product are $O. 18 for materials and $0.06 for labor. margin of 10 percent of the retailers' cost of the item The company intends to give retailers a margin of 20 percent off the suggested retail price and wholesalers a a At what price will Diversified Citras Industries be selling its product to wholesalers? b. What is the contribution per unit for Zap? c. What is the break-even unit volume in the first year? d. What is the first-year break-even share of market? e. If Diversified achieves their break-even market share, and total industry spending on advertising is $625,000, what is their SOV/SOM .. and what does that suggest to you? Print Layout View Sec 1 Pages: 1 of 3 Words: 270 of 10096

Answer 1

ANSWER: a) At what price will Diversified Citrus industries be selling its product to wholesalers? Price to Wholesalers-MRP-Retailer's margin-Wholesaler's margin 0.50 (0.20*0.50) (0.10*0.50) -0.35 b) What is the contribution per unit for zap? Contribution per unit Price to Wholesalers-Variable cost Variable cost Material Labor Discount 0.18+0.06(0. 5) 0.28 Discount is S0.20 for 1 can out of 5 cans Hence, contribution 0.35-0.28 =S0.07 per unit
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