Question

Given the above information in Q1, Shannon’s wants to increase its sales to retailers by 20% in the next year. Management estimates that the incremental promotion program required to generate sufficient demand to boost sales by 20% will be: Personal Selling Costs $ 60,000 (exclusive of commission) Consumer Advertising $ 60,293 Trade Promotion $ 38,164 Sales Promotion $ 25,000 Shannon’s will need to hire an additional sales person (paid a salary and commission) and provide some added administrative support. The sales person’s salary plus administrative support will cost about $60,000 per year. The sales person’s commission will be the equivalent of $0.05 per six pack sold. The incremental costs of consumer advertising, trade promotion, and sales promotion necessary to support sales in the new market will be substantial as indicated in the table above. What level of sales in six packs will be required to break-even on the incremental costs that are anticipated?

INFORMATION FROM Q1:

THE ANNUAL BREAKEVEN IN SIX PACKS OF BEER: 75883.33

Q1 QUESTION (ALREADY ANSWERED)

Shannon’s distributes its beer through a wholesaler, Miller of Denton. The retail selling price for a six pack of its typical craft beer is $12.00. The retailer’s cost per six pack is $8.00. The wholesaler selling the beer to the retailer for this price. Shannon’s sells a six pack to the wholesaler for $5.40. Shannon’s variable costs of production, packaging, and distribution are $3.60 per six pack. Shannon’s has the following annual fixed operating and marketing costs:

Marketing Costs	$51,959
Consumer Advertising	$31,831
Trade Promotion	$30,000
Sales Promotion	$18,000

Answer 1

Incremental Fixed Costs :

Personal Selling Costs = $60,000

Consumer Advertising = $ 60,293

Trade Promotion = $38,164
Sales Promotion = $25,000

Sales person’s salary plus administrative support = $60,000

Total Incremental Fixed Costs = $243,457

Current Fixed Costs = $131,790

Contribution Margin per Unit = $5.4-$3.6 = $1.8

Less: Commission $0.05

Revised Contribution Margin per Unit = $1.75

Level of Sales required to break even = $243,457/1.75 = 139,118.285 six pack beers