Question

Determine the market potential for a backpack that has 200,000 prospective buyers who purchase an average of 2 backpack per year at an average price $50 per backpack. How many units must a company sell if it desires a 10% share of this market? Supplier of backpack leases the factory for $400,000 per year and has a variable cost of $ 30 per unit. What % of the market supplier should capture to break even?

Answer 1

Answer:

i.The total number of a company sell if it desires a 10% share of this market? is 40,000 units

ii. The % of the market supplies that should capture to break even is 5%

Explanation:

To calculate break even point in unit, use the formula;

Fixed Cost / Contribution Margin.

In this question, Fixed cost is the factory lease cost of one year for $400,000

Contribution margin is the difference betwen Selling Price and Variable Cost.

This will be $50-$30=$20

Therefore, Break even point in unit = $400,000 divided by $20

this will give 20,000 units.

20,000 units is 5% of the market size of (200,000X2) 400,000 units.

I.e. (20,000/400,000)X100=5%