MKTG 489 – FINANCIAL EXERCISES (AY 2015)
Due as an Excel (.xls) file via Titanium prior to class

EXERCISE 1

Fred Flintstone has just become the product manager for Yabba Dabba Doo, a consumer packaged product with a retail price of $2.00. Retail margins on the product are 33%, while wholesalers take a 12% margin. Yabba and its direct competitors sell a total of 40 million units annually, and Yabba has 24% market share of this total. Variable manufacturing costs for Yabba are $0.09 per unit. Fixed manufacturing costs are $1,800,000. The advertising budget for Yabba is $1,000,000. The product manager’s salary and expenses total $70,000. Salespeople are paid entirely by a 10% commission. Shipping costs, breakage, insurance, and other …show more content…

(a) At what price will Cats Gone Wild be selling WOW-MEOW to wholesalers?
(b) What is the contribution per unit (8-ounce can)?
(c) What is the breakeven unit volume in the first year?
(d) What is the first year breakeven share of market?

EXERCISE 5- Cannibalization

Clear View, a manufacturer of an inexpensive line of tables, distributes its products to large retailers. The product line consists of three models of tablets:

Model Selling Price/Unit Variable Cost/Unit Demand/Year (price to retailers) (units)

Model A $350 $200 2,000
Model B $500 $250 1,000
Model C $600 $280 500
Model D $750 $450 300

Clear View is considering adding a fourth model to the product line. This model would be sold to retailers for $750. The variable cost of this unit is $450. The demand on this new Model D is estimated to be 300 units per year.

Sixty percent of these unit sales of the new model are expected to come from other models already being manufactured by Clear View (10% from Model A, 30% from Model B, and 60% from Model C).

Clear View will incur a fixed cost of $40,000 to add the new model to the product line. Based on the preceding data, should Clear View add the new Model D? Explain your