The marketing department is getting ready to launch a new product. Before doing so, they have to finalize the business case to present to the executives. The selling price is expected to be $30. The cost information fir the new product is as follows:
Overhead expenses- $200,000
Advertising- $150,000
Raw materials- $8.75/unit
Patent Royalties- $2.00/unit
Sales commission- $1.50/unit
Salesperson salaries- $300,000
A) What is the contribution margin per unit?
B) What volume must be sold for the business to break even (in both units and dollar)?
C) What is the volume in units that must be sold for the firm to make $300,000 in profit?
D) What happens to the break-even volume if managers decide to reduce the price by 15%?
E) What happens to the break-even volume if extra salespeople need to be hired (with a cost of $75,000)?