(II) One of the first decisions you have to make as the brand manager for Clearlake is whether or not to add a new line of counter top vegetable steamers, the "Super-Clearlake line. The line would be marketed in addition to the original Clearlake line. Your brand assistant has provided you with the following facts.

a. Retail selling price $70 per unit

Retailer's margin 20%

Jobber's margin 15%

Wholesaler's margin 23.5%

c. Direct factory labor $3 per unit

d. Raw materials $6 per unit

e. Additional factory and admin. overheads $3.5 per unit

(if unit volume = 50,000)

f. Salesperson's commissions: 10% of manufacturer's selling price

g. Incremental sales force travel cost $60,000

h. Advertising for Super Clearlake $650,000

i. New equipment needed $950,000 (to be depreciated over 10 years)

j. Research and development spent $250,000

up to now

k. Research and development to be $600,000 (to be amortized over 5 years)

spent this year to commercialize

the product

Questions

1. What is the contribution per unit of the Super-Clearlake brand?

2. What is the break-even volume in units and in dollars?

3. What is the sales volume in units necessary for Super Clearlake to yield in the first year, a 24 percent return on the equipment to be invested in the project?

(III) The $70 selling price for Super Clearlake seems high to you. You thought you might lower the price to $60 per unit and raise retail margin to 25 percent.

Question

What is the break-even volume in units?