Product X is a consumer product with a retail price of $8.95. Retailers margins on...
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Product X is a consumer product with a retail price of $8.95. Retailers margins on the product are 20% (based on the selling price to consumers) and wholesalers margins are 12% (based on the selling price to retailers). The size of the market is $250,000,000 annually (based on retail sales); the current market share for Product X (in dollars) of this market is 19%.
The fixed costs involved in manufacturing Product X are $2,200,000 and the variable costs are $0.76 per unit. The advertising budget for Product X is $1,600,000. Miscellaneous variable costs (e.g., shipping and handling) are $0.14 per unit. Salespeople are paid entirely by a 12% commission based on the manufacturers selling price. Product managers salary and expenses are $120,000.
1. Calculate the increase in sales over the current volume needed to maintain the current (annual) profit level if the manufacturer doubles its advertising expenditures.
2. Calculate the increase in sales over the current volume needed to maintain the current profit level if the manufacturer lowers its price by 25%.
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