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30 November, 13:54

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.

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  1. 30 November, 15:28
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    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
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