Question

Retail price                                                   : $449                                    

            Retail margin                                     : 42.5%

            Wholesale margin                                        : 27.5%

            R & D on hearing aid, FY’s 2019, 2020   : $119,000

            Introductory promotional outlays, FY2021: $159,000

            MBR’s fixed manufacturing costs             : $155,000 per year (FY 2021)

            Variable manufacturing costs/unit : $95

            Retailer’s salesperson’s commission      : 2% of retailer’s selling price

            MBR’s sales commission paid                   : 4% of manufacturer’s selling price

            Population of Big Smoke”                           : 2,975,000

            Proportion of population over 60 years    : 18%

           

1. What is MBR’s (show your logic)

1. unit contribution margin ($)?         

Contribution per unit = Unit selling price – unit variable cost

                                    = $449 - $95

                                    = $354

 

2. unit contribution margin ratio (%)? 

Contribution margin = unit selling price – unit variable cost

                                                           Unit selling price

                                    = $449 - $95

                                                            $449

                                                = $354

                                                               $449

                                                            =.789 = 78.9%

 

 

(b) How many units must MBR sell in the first year (2021) to break even? Carefully explain, including any assumptions that you make. 

Break-even= ____total dollars fixed costs_____   

                        Unit selling price – unit variable costs

                    =             $119,000

                                    $449-$95

                    =336.16 = 337 Units.

If using the outlay = 278,000

                                    354

                                =785.31= 785

I decided the MBR and promotional is a fixed cost because no matter how many units need to be sold. Didn’t consider the promotional outlay because it was for 2021.                  

 

3. If 15% of the “over 60” population is hearing impaired, what is MBR’s break-even market share in 2021? (Identify and explain any assumption(s) that are necessary).    

Break Even

     Population = 2,975.000

      Population over 60 = 2,975.000 X .15 = 446,250

      Breakeven = 337 units

                        = (337/446,250)

                        = .76%

      Breakeven = 792 units

                        = (785/446,250)

                        = .18%

d) Given MBR’s market share (see (c) above), assess MBR’s prospects of breaking even in 2012. 

Answer 1

Contribution margin:

Contribution per unit = Unit selling price – unit variable cost

                                    = $449 - $95

                                    = $354

contribution margin ratio (%)

Contribution margin = (unit selling price – unit variable cost) / unit selling price

                                    = ($449 - $95) / $449

   =.789 = 78.9%

Part B & C

Note that R&D cost has not been included in the fixed cost since they were incurred in FY2019 and 2020. In case you have any other information which says you need to include those cost. Just add those cost to the 314,000$ fixed cost that i took. The method to reach the solution will remain the same. but the number of units required to breakeven will increase.

Part D

As seen in part C in order to breakeven MRB only needs a 1.15% market share which is easy to crack given it is spending a lot on promotional outlay. Thus, MRB has good chances of breaking even in 2021.