Question

5 Maybelline recently introduced a high-end lip balm called Baby Lips. The national target market is female, age 24 – 34, income $45,000 and higher. The current price is $4.90. Fixed costs are estimated at $8,775,000. Variable costs are currently $2.55. Maybelline believes that it can reduce cost of goods sold, due to favorable contract negotiations with ingredient suppliers for shea butter, centella and anti-oxidants. As a result, variable costs are predicted to decline by $0.50. Maybelline is debating whether to pass the cost savings on to the consumer or to maintain the current price. What would be the change in Maybelline's breakeven volume (in tubes, +/-) if the company maintains the current price? Round your answer to the nearest whole number. please show work

6 Maybelline is contemplating the introduction of a high-end lip balm, tentatively called Baby Lips. The national target market would be female, age 24 – 34, income $45,000 and higher. The anticipated price would be $4.35. Fixed costs are estimated at $7,250,000. Variable costs will be $2.05. The market for this product category is estimated to be 22,500,000 tubes. What market share would Maybelline need to capture in order for Baby Lips to breakeven? Report your answer as a percent, rounded to one decimal place. please show work

Answer 1

Selling price = $4.9

Fixed costs = $8,775,000

Variable costs = $2.55

Contribution margin per unit = Selling price per unit - Variable costs per unit

= $4.9 - $2.55

= $2.35

Breakeven point in units = Fixed costs / Contribution margin per unit

= $8,775,000 / $2.35

= 3,734,043 tubes

Selling price = $4.9

Fixed costs = $8,775,000

Variable costs = $2.55 - $0.5 = $2.05

Contribution margin per unit = Selling price per unit - Variable costs per unit

= $4.9 - $2.05

= $2.85

Breakeven point in units = Fixed costs / Contribution margin per unit

= $8,775,000 / $2.85

= 3,078,947 tubes

What would be the change in Maybelline's breakeven volume (in tubes, +/-) if the company maintains the current price?

Breakeven point in units decreases by 655,096 tubes (3,734,043 - 3,078,947)

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Selling price = $4.35

Fixed costs = $7,250,000

Variable costs = $2.05

Contribution margin per unit = Selling price per unit - Variable costs per unit

= $4.35 - $2.05

= $2.3

Breakeven point in units = Fixed costs / Contribution margin per unit

= $7,250,000 / $2.3

= 3,152,174 tubes

The market share to be captured = 3,152,174 tubes