Question

Instructions: Please read problem carefully. Write the answers on the answer sheets provided. Make sure that you clearly show all of the work that went in to solving the problem. Partial credit will be awarded on each part of the problem, so make sure that you attempt each part.

You are the marketing manager for TotalControl, an electronics company in Orangeburg. Your company produces a line of remote controls for use in home theaters. The company’s main product, the UR 1000, sold 5000 remotes via internet sales this year. Sales of the product are expected to grow to 6000 next year. The UR 1000 remote sells for $89 each. The company is considering expanding its product line by introducing a new remote with touchscreen controls, the UR 9000T. This remote will sell for $199 and would be sold through retailers like Best Buy. A similar remote, the UR 8000, with slightly different features and styling would be sold direct to consumers via the internet for $159. If TotalControl decides to market the other two remotes, in addition to the UR 1000, it must market both the 8000 and the 9000T. The following information applies to this scenario:

UR 1000 factory labor = $20/unit

UR 1000 raw materials = $15/unit

Current administrative overhead = $120,000

Current advertising = $50,000

Website maintenance = $10,000

Best Buy retailer's margin = 12%

UR 9000T factory labor = $20/unit

UR 9000T raw materials = $40/unit

UR 8000 factory labor = $20/unit

UR 8000 raw materials = $40/unit

Packaging (all remote models) = $5/unit

Additional Advertising for UR 8000 and 9000T = $50,000

Additional administrative overhead for the UR 8000 and 9000T =$10,000

Questions:

a. What is the contribution per unit for the UR 1000?

b. What is the break-even volume in units and dollars for the UR 1000?

c. What is the current net contribution for the UR 1000?

d. The UR 8000 is expected to sell 1,000 units in its first year. Ten percent of this first year volume will be cannibalized from UR 1000’s projected volume. The UR 9000T is expected to sell 800 units with 400 of these units cannibalized from the UR 1000. What is the net financial impact of introducing the two new remotes to TotalControl’s product line?

Referring to the UR 1000 product only, if TotalControl decided to sell half of its products directly to consumers via the Internet and half to consumers via retailers like Best Buy, how many units would they have to sell to break-even?

Answer 1

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