1. Mettel Products sells 100,000 flash drives annually to industrial distributors who resell the drives to business customers for $20 each. The distributors' margins are 30%. Mettel Products' cost of goods sold is $3 each, and its total variable costs (including selling costs) are $5 per drive. What is the gross margin (in percentage) enjoyed by Mettel Products on its drives? [Note: Margins are typically calculated as a percentage of selling prices.]
2. Mettel is considering increasing its advertising spending from $20,000 to $30,000. How many additional flash drives would it need to sell in a year in order to break-even?
BEP: (Fixed cost / CM per unit) * selling price
3. If instead of increasing its advertising spending, Mettel decides to reduce its price by $2 per drive, how many additional units would it need to sell in order to break even?
4. Mettel has developed a new flash drive for household use. The new drives' cost of goods sold is $2 each, and its variable costs are expected to be $5 each. If it were to market the new drive, it believes it could sell 20,000 units annually to electronics stores at $10 each. Although Mettell expects the electronics stores would resell the new flash drives primarily to households, 30% of the electronics stores' sales (in units) are likely to be to business customers who would stop purchasing Mattel drives from industrial distributors (and purchase them from electronics stores instead). Would you advise Mettel to sell the new flash drives to electronics stores? Why or why not?