Question

(II) One of the first decisions you have to make as the brand manager for Verona is whether or not to add a new line of coffee makers, the "Super-Verona line. The line would be marketed in addition to the original Verona line. Your brand assistant has provided you with the following facts. Percentage of sales commison is 10%.

a. Retail selling price $100 per unit

b. All margins the same as before

c. Direct factory labor $3 per unit

d. Raw materials $6 per unit

e. Additional factory and admin. overheads $4 per unit

(if unit volume = 50,000)

f. Salesperson's commissions: the same percent as before

g. Incremental sales force travel cost $95,000

h. Advertising for Super Verona $750,000

i. New equipment needed $1,200,000 (to be depreciated over 10 years)

j. Research and development spent $250,000

up to now

k. Research and development to be $625,000 (to be amortized over 5 years)

spent this year to commercialize

the product

Questions

1. What is the contribution per unit of the Super-Verona brand?

2. What is the break-even volume in units and in dollars?

3. What is the sales volume in units necessary for Super Verona to yield in the first year, a 16 percent return on the equipment to be invested in the project?

(III) The $100 selling price for Super Verona seems high to you. You thought you might lower the price to $88 per unit and raise retail margin to 36 percent.

Question

What is the break-even volume in units?

Answer 1

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