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# \$35.00Marketing Management class due by june 8,2012

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After spending \$300,000 for research and development, chemists at Diversified
Citrus Industries have developed a new breakfast drink. The drink, called
Zap, will provide the consumer with twice the amount of vitamin C currently
available in breakfast drinks. Zap will be packaged in an 8-ounce can and will
be introduced to the breakfast drink market, which is estimated to be equivalent
to 21 million 8-ounce cans nationally.
One major management concern is the lack of funds available for marketing.
Accordingly, management has decided to use newspapers (rather than television)
to promote Zap in the introductory year and distribute Zap in major
metropolitan areas that account for 65 percent of U.S. breakfast drink volume.
Newspaper advertising will carry a coupon that will entitle the consumer to
receive \$0.20 off the price of the first can purchased. The retailer will receive
the regular margin and be reimbursed for redeemed coupons by Diversified
Citrus Industries. Past experience indicates that for every five cans sold during
the introductory year, one coupon will be returned. The cost of the newspaper
advertising campaign (excluding coupon returns) will be \$250,000.
Other fixed overhead costs are expected to be \$90,000 per year.
Management has decided that the suggested retail price to the consumer
for the 8-ounce can will be \$0.50. The only unit variable costs for the product
are \$0.18 for materials and \$0.06 for labor. The company intends to give retailers
a margin of 20 percent off the suggested retail price and wholesalers a
margin of 10 percent of the retailers’ cost of the item.
a. At what price will Diversified Citrus Industries be selling its product
to wholesalers?
b. What is the contribution per unit for Zap?
c. What is the break-even unit volume in the first year?
d. What is the first-year break-even share of market?

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