Question

NPI is a health research and manufacturing company which recently discovered that increased sulforaphane( at least 5,000 mg every 2 days) in a persons diet has been able to extend a persons life span by at least 30 years. The company developed a new product called "Sustain Your Life" which is a small tablet that contains 5,000 mg of sulforaphane in each tablet. The health tablet market size is currently measured at 150 million units(15 tablets per bottle) of which NPI SERVES 35%. NPI plans to launch this new tablet initially across the United States using its current distribution channel of supermarket chains and health food stores which have 25,000 locations combined. The company than plans to expand the product market area to include South America, Europe and Asia and also intends to setup manufacturing plans in these expanded market areas.

NPI fixed cost is currently at $5 million per year with the cost to produce one bottle of 15 tables at $2.35. The finding of several research studies has determined that consumers would be willing to pay $15.35 for one bottle of 15 tables at which the retail selling price would be targeted. The retailers margin is 30%,the wholesalers margin is 20%.

(Round percentages to one decimal point. Round currency to dollars and cents)

a. What is the company's selling price of one bottle of 15 tablets to its wholesalers?

b. What is the products contribution margin as a percentage?

c. What is the products contribution per unit in dollar?

d. What the company's breakeven in units?

e. What is the company's breakeven in dollars?

f. What is the company's breakeven share of market as a percentage?

Answer 1

• market size= 150m. NPI's share= 35% of 150m= 52.5m or 52500000 tabs
• 15 tabs per bottle, so number of bottles= 3500000
• fixed costs =$5m=$5000000
• variable cost= $2.35 per bottle= 2.35/15= 0.16 per unit or tablet
• selling price to consumers= $15.35 per bottle

answer 1

retailer's margin is 30%, So retail price=15.35-30%= 10.75

wholesaler's margin is 20%, So wholesaler's price= 10.75 -20%= $8.6 per bottle

answer 2

contribution per bottle= sales price per bottle - variable cost per bottle= 15.35-2.35=$13

contribution margin as percentage= contribution /sales price * 100= 2.35/15.35 * 100= 15.31%

answer 3

contribution per bottle as calculated above= $13 per bottle.One bottle contains 15 tablets or units. So cont per unit=13/15=$ 0.87

answer 4

Break even in units= fixed cost/ contribution per unit= 5000000/ 0.87= 5447126 units /tablets

answer 5

company's breakeven in dollars= break even in units * sales price per unit

5447125 * 2.35/15= $853382.92

answer 6

breakeven share of market= break even units/ market share units= 5447125/52500000 * 100= 10.38%