Question:
General Electric is considering introducing a new toaster into the market. The toaster is targeted towards interior decorators as opposed to end consumers. As such, there are 3,000 decorators that are relevant to this project. On average, each decorators works on 10 homes per year. Currently, none of the decorators have contracts with other manufacturers.
General Electric has created a new manufacturing process to make the toasters, the cost of which was $125,000. In addition, the toaster will be featured in trade magazines with a total advertising cost of $75,000. The company also plans to give away 100 toasters as a promotion to key real estate developers so that they will recommend these toasters in their neighborhoods. Assume that any given household only needs one toaster.
The base cost of each toaster is $10 for materials, $7 for coloration, and $3 for shipping. The toasters will sell on the market for a price of $75.
1) What is the breakeven point in terms of units on this project?
2) General Electric requires that 40% of their selling price be returned as profit on the project. What is the new breakeven point with target profit planning in terms of units on this project?
3) What share of the market (in terms of homes) is needed to achieve the target profit breakeven volume?
4) Assuming each decorator was able to place your toasters in 70% of their homes, how many decorators would you need to get on board to make this a profitable venture?