Question

Marketing Arithmetic Exercise #2

Joe Stich has just become product manager for Brand X.  Brand X is a consumer product with a retail price of $1.00.  Retail margins on the product are 33%, while wholesalers take a 12% margin. Brand X and its direct competitors sell a total of 20 million units annually; Brand X has a 24% share of this market.  Variable manufacturing costs for Brand X are $0.09 per unit.  Fixed manufacturing costs are $900,000.  The advertising budget for Brand X is $500,000.  The Brand X product manager's salary and expenses total $35,000.  Salespeople are paid entirely by a 10% commission.  Shipping costs, breakage, insurance and so forth are $0.02 per unit.

1.   What is the unit contribution for Brand X?

2.   What is Brand X's break-even point?

3.   What market share does Brand X need to break even?

4.   What is Brand X's profit impact?  [Note profit impact = total contribution – fixed costs]

5.   Industry demand is expected to increase to 23 million units next year.  Mr. Stich is considering raising his advertising budget to $1 million.

5a.   If the advertising budget is raised, how many units will Brand X have to sell to break even?

5b.   How many units will Brand X have to sell in order for it to achieve the same profit impact that it did this year?

5c.   What will Brand X's market share have to be next year for its profit impact to be the same as this year?

5d.   What will Brand X's market share have to be for it to have a $1 million profit impact?

Answer 1