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.

Existing Product New Product

MSRP $5.39 $4.99

Volume Discount 35% 35%

Unit Cost $1.49 $0.99

Promotional Allowance 15% 20%

Advertising & Promotion $25M $20M

Allocated Fixed Costs $68M $12M

Projected Unit Sales 115M 10M

1. How might the results of your break-even calculation affect the marketing of the new product? What other factors besides break-even should you consider?

2. Production anticipates it will need to increase capacity to 140 million units, adding $10.0 million to annual fixed costs. If the product allocation of the plant cost is also changed to 80%/20%, what is the impact on break-even units?

Existing Product New Product

Total Fixed Cost

Unit Selling Price

Unit Variable

Cost Break-Even Unit