Question

Horatio Alger is the product manager for Brand X, a consumer product with a retail price of $1.20. Retail margins are 35% while wholesalers take an 11.5% margin. Brand X and its direct competitors sell a total of 18 million units annually and Brand X has 22% of this market. Variable manufacturing costs for Brand X are $0.08 per unit and fixed manufacturing costs are $950,000. The advertising budget for Brand X is $550,000. The Brand X product manager's salary and expenses total $40,000. Salespeople are paid entirely by a 10% commission. Shipping costs, breakage, insurance and other misc. expenses are $0.03 per unit.

Answer 1

Answer:

Contribution per unit of Bran X = 51 cents

Contribution margin: 51 / 69 = 73.91%

Explanation:

Retail price: 1.20

retail margin of 35% --> thus the cost of good is 1.20 x ( 1 - 0.35) = 0.78

At this price the wholesalers trade to grosery store and others

wholesales margin 11.5% --> the price at which Alger sales the product to wholesalers:

0.78 x (1- 0.115) = 0.6903 producer selling price

Now from this, Horatio has the following variable cost:

variable manufacturing cost:   0.08

shipping and other cost:          0.03

sales persons 10% commision 0.06903

Total variable cost: 0.17903

Contribution per product: .6903 - 0.17903 = 0.51127 = 51 cents