Problem
First Quantitative Problem - pharmaceutical company
A pharmaceutical company is comparing between two allergy drugs and examining which of them would seem to make the most sense, financially-speaking, to introduce in the market. Not only would the firm decide between these two products based on the dollar contribution each product provides back to the company, and the amount of effort needed to break-even but, importantly, the decision to introduce either product will depend on which product requires the lowest number of units sold (after breaking even) that would allow the company to recoup - as a profit goal - a $50 million investment that the pharmaceutical company made. The company invested around $200 million in new technology, $500 million current RBLD and $50 million in advertising for each drug. The pharmaceutical company expects about 30 million potential users for either medicine. Drug "A" has a total variable cost per unit of $182; whereas drug's "B" total variable cost per units is $197. Before medical insurance, the price for drug "A" is $245, whereas the price for product "B" to be $260. The expected markup for either medicine is 5%. Respond the following questions on Blackboard:
a) With only the selling price per unit (and its markup) in consideration, which product is expected to generate the greatest amount of profit?
b) Based on contribution margin analysis, which product seem to perform better financially- speaking?
c) Which product requires the least amount of effort (in terms of units sold) needed to generate the $50 million investment goal?