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Slide $8.$ In$-$class exercise

retailing$-1.$do$...$

$2.$ Case Study: Tyson Expanding Distribution

Tyson Foods is the largest U$.$S$.$ beef and chicken supplier, processing more than $100,000$ head of cattle and $40-$plus million chickens weekly. Their primary distribution channels are supermarket meat departments. However, the company is now expanding distribution into convenience stores. There are almost $150,000$ gas stations and convenience stores where the company would like to sell hot buffalo chicken bites near the checkout. This is a promising channel, as sales are growing considerably at these retail outlets and profit margins on prepared foods are higher than selling raw meat to grocery stores. Tyson will have to hire $10$ more sales representatives at a salary of $$45,000$ each to expand into this distribution channel because many of these types of stores are independently owned. Each convenience store is expected to generate an average of $$50,000$ in revenue for Tyson.

If Tyson's contribution margin ${?}^{**}$ is $30$ percent on this product, what increase in sales will it need to break even on the increase in fixed costs to hire the new sales reps?

Note:

$*$Contribution margin is computed as the selling price per unit, minus the variable cost per unit, also known as the dollar contribution per unit. "Contribution" represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs. This concept is one of the key building blocks of break$-$even analysis. It is often used as a ratio:

Price $-$

Variable cost

contribution margin ratio $=$

$($In

this case, the ratio is $30$ percent$)$

Price

$2.$ How many new retail accounts must the company acquire to break even on this tactic? What average number of accounts must each new rep acquire?

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