Chemists at Great Kiwi Industries have developed a new breakfast drink. The drink, called Kiwig, will provide the consumer with twice the amount of vitamin C as currently available in breakfast drinks. Kiwig will be packaged in an 8-oz. juice box and will be introduced to the breakfast drink market, which is estimated to be 21 million 8-oz. boxes nationally. One major management concern is the lack of funds available for marketing. Consequently, management has decided to advertise in newspaper grocery inserts rather than on television to promote Kiwig in its introductory year. Kiwig will be distributed only in major metropolitan areas that account for 65 percent of U.S. breakfast drink volume. This represents Great Kiwi Industries’ “served market.” The newspaper advertising inserts will feature a $0.20-off-coupon on a can purchased. The retailer will receive the regular margin and be reimbursed for redeemed coupons by Great Kiwi Industries. Past experience indicates that for every five cans sold during introduction, one coupon will be returned making for a 20 percent coupon redemption rate. The cost of the newspaper advertising (excluding coupons redeemed) will be $250,000. Other fixed overhead costs are expected to be $90,000 for the year. Management has decided the suggested retail price to the consumer for an 8-oz. juice box will be $0.50. The unit variable costs for the product are $0.18 for materials and $0.06 for labor. In addition, the manufacturer will charge $0.04 to each can to take care of the total expected coupon redemption cost (.20 coupon *1/5 redemption rate = $0.04). The company intends to give retailers a margin of 20 percent of the suggested selling price and wholesalers a margin of 10 percent of the retailers’ cost of the item.
a. At what price will Great Kiwi Industries sell Kiwig to wholesalers?
b. What is the contribution per unit for Kiwig?
c. What is the breakeven unit volume of Kiwig for Great Kiwi Industries in the first year?
d. What is the first-year breakeven share of the served market? if you could please explain how to get to the answers as well i would greatly appreciate it.