Break-Even Units = Total Fixed Costs / ( Unit Selling Price Unit Variable Cost )

The total fixed costs can be broken into discretionary marketing expenditures (such as sales force and advertising budget) and fixed costs for plant and overhead. The selling price is the MSRP less the volume discount, and the unit cost of goods sold and allowance expense make up the variable cost. use break-even analysis as a check against a plan to launch a new product, and you will use it to assess the impact of higher fixed costs from an increase in capacity.

For this assignment suppose that a firm has an existing product with a combined advertising and promotion budget of $25.0 million and with projected sales of 115 million units. They are launching a new product with a budget of $20.0 million and estimated sales of 10 million units in the first year. The sales force expense of $10 million has been allocated equally between products; 90% of the plant overhead has been allocated to the existing product, and 10%, to the new product. Additional values for each product are shown in the table below.