Question

Gracie Glynn has just become a product manager for Whosyer Products, Inc. and in charge of their new low-cost pencil sharpener: the sharpener,

• will have a retail price of $1.00. Retail margins on the sharpener are 33% and wholesalers take a 12% margin
• Whosyer and its sharpener competitors sell a total of 20 million unit annually
• Whosyer has a 24% unit market share of the market
• Whosyer variable manufacturing costs for its sharpener are $0.09/unit. Fixed manufacturing costs are $900,000
• The advertising budget for the Whosyer sharpener is $500,000. Manager salary and expenses total $35,000
• Whosyer salespeople are paid entirely by a 10% variable commission on Whosyer sales revenue. Shipping costs, breakage, etc. amount to $0.02 per unit.

1. What is the unit contribution ($) for the Whosyer sharpener?

2. What is the Whosyer sharpener's Break Even point (units) rounded?

3. What unit market share does Whosyer require to break even?

4. What is Whosyer's profit impact at its current market share?

5. Industry demand is projected to increase to 23 million units next year. Gracie is considering raising her advertising expenditures to $1,000,000. If the advertising budget is raised, how many units will Whosyer have to sell to break even (rounded)?

6. If Gracie raises the advertising budget, how many units will Whosyer have to sell in order to achieve the same profit impact as it did this year?

7. Under the same scenario as 6a what will Whosyer's market share have to be in order for its profit impact to be the same as this year?

Answer 1