Management has determined that their product should sell for $10 per unit. To manufacture the product, the firm spends $2 each for materials and $1.35 for labor. The company expects that retailers will require a 20% margin in order to stock the product for customers to purchase and wholesalers will require a margin of at least 18%.
A. What price should the producer (or manufacturer) charge to wholesalers?
B. What is the contribution per unit for the product for the manufacturer? What percent margin does the manufacturer realize?
C. Management has spent $500,000 in R&D expenses developing the product. If they move forward with their proposed marketing plan, they expect to spend another $200,000 in advertising and promotion expenses (which is double what they spent last year). Overhead expenses associated with the launch of the product are estimated to be $50,000. What is the break-even volume required for the product?
D. Industry experts suggest that the market demand for this product is 650,000/year. What percent market share must the company achieve to break-even?