Question

Problem 1: After a product recall triggered by salmonella contamination and repeated violation citations by the health department, Mc Burger Inc. is considering introduction of its first brand of soy-based gourmet burgers, Healthylicious-n-Safe. Each box of Healthylicious-n-Safe contains 8 burgers (similar to other meatless burger brands). An extensive marketing research undertaken by the firm indicated that there is a growing demand in the meatless burger market, with annual projected sales of 1,250,000 boxes (Note that this is the demand in the total meatless burger market and not the demand for the Healthylicious-n-Safe brand).

Mc Burger estimates that it will incur a fixed cost of $35,000/month. The variable cost of making one burger is estimated to be $0.875. Mc Burger plans to run a promotional campaign in the first 12 months of product introduction, which is estimated to cost a total of $275,000. Based on its marketing research Mc Burger expects an average customer to pay $9.00 for a box of Healthylicious-n-Safe.

Do you think Mc Burger should launch this new product? Is Mc Burger likely to break-even in 12 months? Is Mc Burger likely to break-even in 18 months?

Research undertaken by an independent marketing research firm indicates that the maximum price the market can bear is $7.75 for a box of Healthylicious-n-Safe. Should Mc Burger go ahead with the launch under this scenario? Will it be able to break-even in 12 months? Will it be able to break-even in 18 months?

Answer 1