Hank Alger has just become product manager for Brand K. Brand K is a consumer product with a retail price of $1.00. Retail margins on the product are 23%, while wholesalers have a 10% mark-up. Variable manufacturing costs for Brand K are $0.10 per unit. Fixed manufacturing costs = $700,000. The advertising budget for Brand K is $500,000.
In 20x1, Brand K and its direct competitors sell a total of 20 million units annually; Brand K has 25% of this market. In 20x1, what is:
The unit contribution for Brand K? $
Brand K’s break even point? (round answer to the nearest thousand) K
Brand K’s profit? (round answer to the nearest thousand) $ K
The market share Brand K needs to break even? %
In 20x2, industry demand is expected to increase to 25 million units per year. Mr. Alger is considering raising his advertising budget to $1 million. Assuming Mr. Alger’s market share increases to 30% in 20x2 if the advertising budget is raised:
What will be Mr. Alger’s ROI on his investment? %
Upon reflection, Mr. Alger decides not to increase Brand K’s advertising budget. Instead, he thinks he might hire 2 additional sales reps (combined salary: $200,000). Assuming his market share in 20x2 increases to 28%:
What will be Mr. Alger’s ROI on his investment? %