STEP BUMPERS: TO BUMP OR NOT TO BUMP The Market In May of 2021, KRapp Plastics Inc. was the leader in injection molding for step bumpers (See Exhibit 8) with 70% share of the market in Ontario. Despite growth of upstart competitors such as Steal Plastics, a company that was started from a former disgruntled employee of KRapp Plastics had 13% of the market and Wuf Plastics 6% and various other small companies the remaining share of the market. Besides Steal Plastics the other competitors focused on regions. Costs and Demand Premium Step Bumpers sold for $30.00(CDN), and the automakers insisted on a 33% margin, and the distributors took a 12% margin based on the selling price of each step bumper. KRapp and its direct competitors sold a total of 800,000 units annually with KRapp's share of 70%. KRapp faced variable manufacturing costs of $2.70 per bumper with fixed manufacturing costs of $900,000 and an annual advertising budget of $500,000. The Salary for the Supervisor and expenses were $35,000. Salespeople for the company were paid solely by a 10% commission on the step bumpers. Shipping costs, breakage and insurance were $0.60 per unit. The CFO of the company Penny Pincher was reviewing the overall costs of the step bumper for a Board Meeting with the Prices family and wanted to explain the following: 1. What is the unit contribution for the step bumper? 2. What is the break-even point for the step bumper? 3. What market share does KRapp have to achieve for break-even? 4. What is KRapp's profit? 5. Also Ms. Pincher reviewed the updated Book of Business, (BOB) report for 2022 and demand was going to increase by 12.5%. Marketing Guru Prices wants the company to increase its advertising budget to $1,000,000. a) What would the new break-even be with the increase budget? b) How many units must KRapp sell to achieve same profit next year as it earned this year in terms of dollar amount? c) What market share does KRapp need to achieve its profit as earned this year in terms of dollar amount? 6. Marketing Guru Prices after some reservation for the outlook of the economy in 2022 has decided not to increase the advertising budget. Based on the industry demand to increase by 12.5% next year, Marketing Guru Prices decided that he would give the automakers an incentive and increase their margin from 33% to 40%. The margin increase would be accomplished by lowering the manufacturer's price of the product to the automaker. Distributor margins remain the same at 12%. a) If the margin increases to 40% to the automaker how many step bumpers must KRapp sell to break-even? b) How many units must KRapp sell to achieve same profit next year as it earned this year in terms of dollar amount? c) What market share does KRapp need to achieve its profit as earned this year in terms of dollar amount? Note: 1. Round to two decimal points. 2. Units were rounded to the nearest next full unit. 3. Do not look at the financial statements in Exhibit 3 and 4 only information given in this section for the step bumpers. (To Bump or Not To Bump]
