Assume you are the product manager for “Snickers” chocolate bars. You sell these

Question

Assume you are the product manager for “Snickers” chocolate bars. You sell these to retailers for $ 0.50 each. Each Snickers bar package contains a $ 0.10 coupon that consumers can redeem by returning it to the manufacturer (i.e., you). Based on historical data, you expect 10% of the consumers to redeem their coupons. It costs you $ 0.09 to manufacture each bar. In a normal year, you sell 10 million bars, and spend $ 10 million on marketing campaigns. In order to boost sales this year, you are planning to launch an additional campaign involving TV advertising and in-store displays. This additional campaign will cost you $ 4 million. How many additional Snickers bars will you need to sell to break-even on the additional marketing spending/investment of $ 4 million?

Explanation / Answer

Selling price per bar: $0.50 Variable cost: Manufacture cost 0.09 Estimated Coupon cost (0.10*10%) 0.01 Total variable cost $0.10 Contribution margin per bar $0.40 Additional Advertisement cost $4,000,000 Break even units for additional advertisement cost: Additional Advertisement cost /Contribution margin per unit $4000,000 /0.40 = $10000,000 or 10 Million bars Additional bars to be sold: 10 millions bars

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