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# \$3.00contribution and break even volume

• From Mathematics: Statistics
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• Due on Feb. 19, 2012
• Asked on Feb 18, 2012 at 3:43:14PM

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Diversified Cirtrus Industries developed a new drink. Zap. spent 300,000 for research and development.Zap will be packaged at 8 oz.can and introduced to breakfast drink market, estimated to be 21 million 8 oz. cans nationally.  Management decided to use newspapers instead of television

to promote Zap in the introductory year and distribute Zap in major areas that account for 65%of the breakfast drink volume.Newspaper advertsing will carry a coupon for the consumer to receive .20 off the price of the firswt can purchased.Retailer will receive the regular margin and be reimbursed for redeemed coupons by Diversified. Past experience indicates that for  every 5 cans sold during introductory year, one coupon will be returned. Cost of newspaper advertising excluding coupon returns will be \$250,000. Other fixed overhead  costs are expected to be \$90,000 a year.

Management decided that retail price to consumer for the 80z can will be .50.The only variable costs for products is .18 for materials and .o6 for labor. Company will give retailer a margin of 20% off the retail price and wholesalers a margin of 10 % of the retailers cost of the item.

a. what price will Diversified Citrus Industries be selling its product to wholesalers?

b. what is contribution per unit for Zap?

c. what is the break-even unit volume for the first year?

d. what is the first-year break even share of the market?

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• Posted on Feb 18, 2012 at 4:04:18PM
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Preview: ... Discount = 0.18 0.06 (0.2 / 5) = 0.28 Discount is \$0.20 for 1 can out of 5 cans Hence, contribution = 0.35 - 0.28  =\$0.07 per unit c. ...

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• Posted on Feb 18, 2012 at 7:04:42PM
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Preview: ... me in the first year?  The break even point in units = Fixed costs / Contribution per unit  Fixed costs= 250,000 + 90,000  = \$340,000.00  Hence, breakeven = 340,000 / 0.07 ...

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• Posted on Feb 19, 2012 at 5:14:19PM
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