Question

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 $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).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?

Answer 1

Total Variable cost per unit = $ 5.00 + $ 8.00 + $ 2.00 = $ 15.

Unit contribution margin = Unit Selling Price - Variable Cost per Unit = $ 25 - $ 15 = $ 10.

Contribution margin ratio = $ 10 / $ 25 = 0.40

Total fixed cost = $ 15,000 + $ 25,000 = $ 40,000.

Current break-even dollar sales = Fixed Cost / Contribution Margin Ratio = $ 40,000 / 0.40 = $ 100,000.

Total sales = 10,000 x $ 25 = $ 250,000.

Increase in advertising expense = $ 250,000 x 4 % = $ 10,000.

New break-even dollar sales = $ ( 40,000 + 10,000) / 0.40 = $ 125,000.