FINS Exercises Essay

887 Words Feb 22nd, 2015 4 Pages
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
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(b) How many units will Yabba have to sell next year in order for it to achieve the same profit that it did this year?
(c) What will Yabba’s market share have to be next year for its profit to be the same as this year?
(d) What will Yabba’s market share have to be for it to generate a profit of $700,000?

EXERCISE 4

After spending $600,000 for R&D, chemists at Cats Gone Wild have developed a new cat food called WOW-MEOW. The food will be packaged in an 8-ounce can and will be introduced to the cat food market, which is estimated to be 42 million 8-ounce cans nationally. WOW-MEOW will be distributed in major metropolitan areas that account for 65% of the US cat food volume.

The food will be promoted via newspapers and will offer a coupon for $0.40 off for the first can purchased—and the retailer will receive the regular margin and be reimbursed for redeemed coupons by Cats Gone Wild. Past experience indicates that for every 5 cans sold during the introductory year, one coupon will be redeemed. The cost for the newspaper advertising campaign will be $500,000 in addition to coupon redemption reimbursements. Other fixed overhead costs are expected to be $180,000 per year.

Management has decided that the suggested retail price for the 8-ounce can to the consumer will be $1.00. The only unit variable costs for the product are $0.36 for materials and $0.12 for labor. The

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