Problem: As the Marketing Manager for the Zig brand of microwave ovens in a large consumer products company you must answer the questions found below with the following financial information regarding your product.
Total market for Microwave Ovens 5 million units
Current yearly sales of Zig brand 750,000 units
Direct factory labor $13.20 per unit (VC)
Raw materials $50 per unit (VC)
Salesperson's Commissions 10% of Manufactures Selling Price (VC)
All factory and administrative overheads $2,000,000 (FC)
Retail selling price $300 per unit
Retailers margin 20%
Jobber's margin 20%
Wholesaler's margin 15%
Sales travel expenses $800,000 (FC)
Advertising $3 million (FC)
Distribution channel is Manufacturer Wholesaler Jobber Retailer
Questions to do:
Question 1. The selling price for the manufacturer is $163.20. Show how this selling price is determined based on the margins provided.
Question 2. Using this selling price, what is the contribution per unit for the Zig brand?
Question 3. What is the break even volume in units and in dollars?
Question 4. What market share does the Zig brand need to break even?
Question 5. What is the current total contribution?
Question 6. What is the current before tax profit of the Zig brand'?
Question 7. What market share must Zig obtain to contribute a before tax profit of $100 million?