(Case Study: EMR Innovations) Eric and Mary Reynolds operate an RV repair shop and are avid RVers themselves. Because of their familiarity with RVs, they have developed the Lock-Awn Anti-Billowing Device, which they believe is a superior alternative to other existing fixes for a common problem with RVs. In addition to the Lock-Awn, they would like to develop and sell other new products that address additional RV problems on a regular basis through their new company, EMR Innovations. Eric and Mary believe they have a sure winner in the Lock-Awn product, but they must decide on a marketing strategy as the next step in the process to consider whether or not the Lock-Awn and EMR Innovations, for that matter, are viable. In order to make this decision, Eric and Mary review their information about potential customers, competitors, and possible distribution strategies to identify potential target markets and positioning strategies.
Determine the sales of the Lock-Awn (in units and revenue) needed to break even and the payback period for the initial capital investments, for both the “more-for-more” and “more-for-less” niche. (Hint: Assume the Reynolds borrow $200,000 at 8 percent interest to be paid back in two annual payments. Further assume that the Reynolds incur maximum marketing expenses. For breakeven analysis, use straight-line depreciation method over 3, 5, and 7 years, respectively, for mold and tooling, office equipment, and assembly and packing equipment.) What is the impact on break-even if sales are higher than expected by 25 percent? Lower by 25 percent? What is the impact on break-even if sales are higher than expected by 50 percent? Lower by 50 percent? How likely is it that EMR Innovations can break even and recover its investment costs?