The product manager for Company XYZ (the manufacturer) was preparing a new product analysis to evaluate its profitability. On the basis of extensive consumer research, he had decided to sell the product at $25 retail. In this market, retailers expected a 30% margin on cost (there is no wholesaler). Brand XYZs variable costs are $12.50 per unit, and the total fixed costs are estimated to be $100,000. The forecasted sales volume for the item at this $25 retail price is 20,000 units.

1. Will the product make a profit with this planned selling price? If YES, how much? If NO, how much of a loss would there be?

b. In year 2, the company plans to introduce a second product ABC in a completely different market to prevent cannibalization. Product ABC has a unit contribution of $6.85. The brand manager thinks that they will be able to sell 4,500 units in the first quarter. Unit sales are forecasted to increase 10% every subsequent quarter. The company has invested $50,000 in R&D for the product as well as $45,000 in marketing for the launch. What is the Year #1 ROMI for this new product initiative?