1. You have just been appointed the product manager for the FLEXO brand of lathes in a large industrial products company. As part of your new job, you want to develop an understanding of the financial situation for your product. Your assistant has provided you with the following facts:

a. End-user purchase price $3,000.00

b. Distributors margin 20%

c. Jobbers margin 20%

d. Wholesalers* margin 15%

e. Direct factory labor $200.00

f. Raw materials $100.00

g. All factory and administrative $100.00 per unit (at a 1,000

overheads unit volume level)

h. Salespersons commissions 10% of manufacturers selling

price

i. Sales force travel costs $ 20,000.00

j. Advertising $500,000.00

k. Total market for lathes 10,000 units

l. Current yearly sales of Flexo 2,100 units

* An agent who sells to the jobbers, who in turn sell to the distributors.

QUESTIONS

1. What is the contribution per unit for the Flexo brand of lathes?
2. What is the break-even volume in units and in dollars?
3. What market share does the Flexo brand need to break-even?
4. What is the current total contribution?
5. What is the current before tax profit of the Flexo Brand?
6. What market share must Flexo obtain to contribute a before tax profit of $2 million?

Hints: You can use breakeven analysis to answer most of the questions. You need to calculate the manufacturers selling price by subtracting the distributors, jobbers and wholesalers margins, in that order, from the end-users price. Factory and administrative overheads are fixed costs ($100,000) do not adjust it for volume.