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Financial Analysis Exercise - Marketing Manager for the Zig Brand of Microwave Oven

As the Marketing Manager for the Zig brand of microwave ovens in a large consumer products company you must answer the questions found below with the following financial information regarding your product.

Total market for Microwave Ovens 5 million units
Current yearly sales of Zig brand 750,000 units
Direct factory labor $13.20 per unit (VC)

Raw materials
Salesperson's Commissions $50 per unit (VC)
10% of Manufactures Selling Price (VC)
All factory and administrative overheads $2,000,000 (FC)
Retail selling price $300 per unit
Retailers margin 20%
Jobber's margin 20%
Wholesaler's margin 15%
Sales travel expenses $800,000 (FC)
Advertising $3 million (FC)

Distribution channel is Manufacturer  Wholesaler  Jobber  Retailer

Note:
In order for you have the correct answers for the following six questions you must determine the selling price for the manufacturer, The selling price for the manufacturer is $163.20. Please show all calculations that end up with the selling price based on the information above.

Questions

1. What is the contribution per unit for the Zig brand? Answer ____________________

2. What is the break even volume in units and in dollars? Answer ___________________

3. What market share does the Zig brand need to break even? Answer _______________

4. What is the current total contribution? Answer ________________________________

5. What is the current before tax profit of the Zig brand'? ___________________________

6. What market share must Zig obtain to contribute a before tax profit of $100 million?

Answer ___________________________

Solution Preview

Retail selling price is $300. The retailer margin is 20% which is 300X20%=60. The retailer price is $240. The jobbers margin is 240X20%=48. The jobbers price is 240-48=$192. The wholesalers margin is 192X15%=28.80. The wholesalers buy price is 192-28.8=$163.20 which is the manufacturers price

1. What is the contribution per unit for the Zig brand? Answer ____________________

Contribution margin = selling price – variable cost
Variable costs are
Direct Factory labor 13.20
Raw Material 50
Sales ...

Solution Summary

The solution explains the calculation of contribution margin, breakeven, and market share for Zig microwave oven. Formulas, step-by-step calculations and answers are provided.

$2.19