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MKTG 489 – FINANCIAL EXERCISES

Homework Due as an Excel (.xls) file via Titanium before class

EXERCISE 1

Horatio Alger has just become the product manager for Brand Titan, a consumer packaged product with a retail price of $1.00. Retail margins on the product are 33%, while wholesalers take a 12% margin. Brand Titan and its direct competitors sell a total of 20 million units annually, and Brand Titan has 24% market share of this total. Variable manufacturing costs for Brand Titan are $0.09 per unit. Fixed manufacturing costs are $900,000. The advertising budget for Brand Titan is $500,000. The product manager’s salary and expenses total $35,000. Salespeople are paid entirely by a 10% commission. Shipping costs, breakage, insurance, and other miscellaneous costs are $0.02 per unit.

(a) What is the unit contribution for Brand Titan?

(b) What is Brand Titan’s breakeven point?

(c) What market share does Brand Titan need to break even?

(d) What is Brand Titan’s profit impact?

EXERCISE 2

Industry demand for Brand Titan is expected to increase to 23 million units next year. Mr. Alger is considering raising his advertising budget to $1 million.

(a) If the advertising budget is raised, how many units will Brand Titan have to sell to break even?

(b) How many units will Brand Titan have to sell in order for it to achieve the same profit impact that it did this year?

(c) What will Brand Titan’s market share have to be next year for its profit impact to be the same as this year?

(d) What will Brand Titan’s market share have to be for it to have a $1 million profit impact?

EXERCISE 3

Upon reflection, Mr. Alger decides not to increase Brand Titan’s advertising budget. Instead, he thinks he might give retailers an incentive to promote Brand Titan by raising their margins from 33% to 40%. The margin increase would be accomplished by lowering the price of the product to retailers. Wholesaler margins would remain at 12%...