Problem:
As the Marketing Manager for the Zig brand of microwave ovens in a large consumer products company you must answer the questions found below with the following financial information regarding your product.
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Total market for Microwave Ovens
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5 million units
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Current yearly sales of Zig brand
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750,000 units
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Direct factory labor
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$13.20 per unit (VC)
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Raw materials
Salesperson's Commissions
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$50 per unit (VC)
10% of Manufactures Selling Price (VC)
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All factory and administrative overheads
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$2,000,000 (FC)
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Retail selling price
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$300 per unit
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Retailers margin
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20%
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Jobber's margin
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20%
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Wholesaler's margin
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15%
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Sales travel expenses
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$800,000 (FC)
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Advertising
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$3 million (FC)
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Distribution channel is Manufacturer → Wholesaler → Jobber → Retailer
Required to do:
Problem 1. What is the contribution per unit for the Zig brand?
Problem 2. What is the break even volume in units and in dollars?
Problem 3. What market share does the Zig brand need to break even?
Problem 4. What is the current total contribution?
Problem 5. What is the current before tax profit of the Zig brand'?
Problem 6. What market share must Zig obtain to contribute a before tax profit of $100 million?