Question 5

Foods Inc (FI) sells 5 million units per year of its only product (SuperFood) through a major retailer. SuperFoods retail price is $5 per unit which included a margin to the retailer of 20%. SuperFoods manufacturing cost is $3 per unit. In order to promote sales, FI pays a sales broker 5% of the retail price of each unit sold. FI spends $3,500,000 per year in fixed costs (i.e. advertising, administrative costs and rent of the production facility).

New Information: FI is planning to introduce a new product called ExtraFood at a retail price of $6 per unit using the same retailer (the marketing margin of the retailer is still 20%) and broker (brokerage fee is still 5% of retail price per unit sold). ExtraFoods manufacturing cost is $3 per unit. In order to introduce ExtraFood, FI would incur additional fixed costs of $4,000,000 per year (e.g. research and development, advertising, depreciation on new equipment). Demand for the new product is estimated to be 2 million units, 50% of which is expected to come from SuperFood.

Question: What is ExtraFood's Breakeven Volume?

Question 5 options: 4,666,667 units 3,555,556 units 2,000,000 units 8,000,000 units

Question 6

Foods Inc (FI) sells 5 million units per year of its only product (SuperFood) through a major retailer. SuperFoods retail price is $5 per unit which included a margin to the retailer of 20%. SuperFoods manufacturing cost is $3 per unit. In order to promote sales, FI pays a sales broker 5% of the retail price of each unit sold. FI spends $3,500,000 per year in fixed costs (i.e. advertising, administrative costs and rent of the production facility).

New Information: FI is planning to introduce a new product called ExtraFood at a retail price of $6 per unit using the same retailer (the marketing margin of the retailer is still 20%) and broker (brokerage fee is still 5% of retail price per unit sold). ExtraFoods manufacturing cost is $3 per unit. In order to introduce ExtraFood, FI would incur additional fixed costs of $4,000,000 per year (e.g. research and development, advertising, depreciation on new equipment). Demand for the new product is estimated to be 2 million units, 50% of which is expected to come from SuperFood.

Question: Comparing the BEV calculated earlier with the actual sales of ExtraFood. Is FI making a profit? Why?

Question 6 options:

	No FI is NOT making a profit, actual sales < break-even volume
	No FI is NOT making a profit, actual sales > break-even volume
	Yes FI is making a profit, actual sales < break-even volume
	Yes FI is making a profit, actual sales > break-even volume