Question

Exercise 3 APPLICATION Marketing Scenario B: You are a supplier of a product line. Given the information below, answer each of the questions asked. You are given the following information (2017 Annual): Price per Unit $25.00 Advertising $15,000 Packaging per unit $ 5.00 Direct Labor per unit $ 8.00 Depreciation $25,000 Royalties per unit $ 2.00 Plant and Equipment Rent $50,000 Total Units Sold 10,000 Your firm’s Total Assets are $400,000 with total equity of $75,000. Using the Contribution Margin PRICE PER UNIT METHOD, make the calculations indicated below (all formulae and calculations must be shown) (Hint: In this exercise you don’t need COGS; you are using variable cost per unit from the Price per unit method).

a. Set up your Price Per Unit Performance template (See handout – Total Sales vs. Price per Unit Method).

b. Calculate your firm’s Breakeven Point in Dollar Sales and in Units Sold.


Convert your Price per Unit Performance Assessment to an Income Statement based on Total Sales.

c. Prepare your 2017 Income Statement (based on total Sales)

d. Assume you want to increase your advertising expenditures by four percent of Total Sales for the coming year. If price and all other operating expenses remain unchanged, what is your new Breakeven Sales in dollars figure?

e. Assume that the total industry’s (2017) sales figure for your product line is $1,200,000 and your firm’s 2016 sales in units were 9,600, what is the firm’s market share % of the industry’s total sales ‐‐‐ and your firm’s 2017 sales growth rate percentage?

Need help with C, D, & E.

Answer 1

Answer to C.

2017 Income Statement
	Amount in $
Revenue (sales 10,000 units @ $25 each)	250,000.00
Packaging (10000 units * $5)	50,000.00
Direct Labour (10000units *$8)	80,000.00
Royalties (10000units * $2)	20,000.00
Depreciation	25,000.00
Plant & Equipment rent	50,000.00
Total Factory Cost	225,000.00
Gross Profit	25,000.00
Less: Advertisement	15,000.00
Net profit	10,000.00

Answer to D.

Break Even Point = Total Fixed Cost / Margin per unit

Total Fixed Cost
Depreciation	25,000.00
Plant & Equipment rent	50,000.00
Advertisement (104% of $15000)	15,600.00
Total	90,600.00
Contribution per unit
Sales Price	25.00
Packageing	(5.00)
Direct labour	(8.00)
Royalty	(2.00)
Contribution per unit	10.00

So, Break even point is = 90600 / 10 = 9,060 units

Answer to part E.

Total Industry Sales	1,200,000.00
Company sales in 2017 (10,000 units * $25)	250,000.00
Company sales in 2016 (9,600 units * $25)	240,000.00
Sales Growth (2017 sales - 2016 sales)	10,000.00
Market Share	20.83%
(Company sales / Industry Share)
Sales Growth %	4.17%
(Sales growth amount / Sales in 2016)