There is excitement in the air! The new UltraGuard flea collar is about to be in
ID: 2643791 • Letter: T
Question
There is excitement in the air! The new UltraGuard flea collar is about to be introduced to the market. The collar will feature enhanced protection, increased longevity and is environmentally friendly. It will be priced at $9.15 and has unit variable costs of $4.05. The company expects to sell 48,550 UltraGuard collars during the next six months. Some of the sales will come at the expense of the current product, the PetArmor collar, priced at $6.50 with variable costs of $2.90. Projected sales for the PetArmor collar are 95,000 units (without the introduction of the UltraGuard). The market analyst estimates that the UltraGuard collar will cannibalize 18,600 PetArmor collars during the introductory 6 month period.
The company is planning a sales promotion campaign to target veternarians at the time of the new product launch. The company is going to invest $52,250 in printed materials and samples.
Calculate the breakeven sales volume necessary to justify the promotional campaign.
Answer:14,043
HOW DO YOU SOLVE THIS
Explanation / Answer
Break even sales = Total Fixed expenses / (Weighted average selling price-Weighted Averaga variable cost)
= 52250/ (7.52-3.52) = 13,043
Workings:
Total selling expenses
52,250
Selling price per unit - Ultra guard flea collar
9.15
Variable unit cost - Ultra guard flea collar
4.50
Expected sales (a)
48,550
Selling price per unit - PetArmor Collar
6.50
Variable unit cost - PetArmor Collar
2.90
Expected sales
95,000
Less: Sales lost
18,000
Net expected sales of PetArmor Collar (b)
77,000
Total sales (a+b)
125,550
Sales % of Ultra guard flea collar
39%
Sales % of PetArmor Collar
61%
Weighted Avg selling price = (Sale price Ultra guard*sale % ultra guard)+(sale price PetArmor*sale % PetArmor)
7.52
Weighted Avg Variable cost = (Variable cost Ultra guard*sale % ultra guard)+(Variable cost PetArmor*sale % PetArmor)
3.52
Total selling expenses
52,250
Selling price per unit - Ultra guard flea collar
9.15
Variable unit cost - Ultra guard flea collar
4.50
Expected sales (a)
48,550
Selling price per unit - PetArmor Collar
6.50
Variable unit cost - PetArmor Collar
2.90
Expected sales
95,000
Less: Sales lost
18,000
Net expected sales of PetArmor Collar (b)
77,000
Total sales (a+b)
125,550
Sales % of Ultra guard flea collar
39%
Sales % of PetArmor Collar
61%
Weighted Avg selling price = (Sale price Ultra guard*sale % ultra guard)+(sale price PetArmor*sale % PetArmor)
7.52
Weighted Avg Variable cost = (Variable cost Ultra guard*sale % ultra guard)+(Variable cost PetArmor*sale % PetArmor)
3.52
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