Question
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
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.
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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