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4.0 FINANCIALS 4.1 Break-even Analysis It is estimated that in its first year on the market, Shades of Mercedes will produce sales revenue of $42,000,000. This sales revenue estimation is based on sales within the United States combined with international sales. The average sales price is $120 with a corresponding variable expense of $80 per pair. Thus the contribution margin per pair of sunglasses is $40 ($120-$80). With estimated fixed expenses of $3,000,000; a net loss is accumulated of 1.6 million dollars. Table 4.1 Shades of Mercedes First Year Estimate | |TOTAL |PER UNIT | |Sales (35,000 units)…show more content…
Year two and year three quarterly forecasts were calculated using the same percentage. This may be adjusted as more distinct patters emerge. The risks that are being taken are serious and may include any, or multiple of the following: • Taking an extensive time to reach the break-even point. Current, the break-even time is estimated at the end of year two. However, if this takes longer, it may become a financial burden for the Shades of Mercedes. • Short term and long term estimates can be off the mark and the Shades of Mercedes may not be as successful as forecasted (above). • The store selections made to carry the product are not successful, limiting the Shades of Mercedes success. • Mercedes-Benz shareholders may not be satisfied with the brand extension, and the time it takes for the Shades of Mercedes to break-even and start to produce a profit. • Worst case scenario is the Shades of Mercedes fails to be successful, and Mercedes-Benz has to cancel the brand extension. The essential components of sales performance for the Shades of Mercedes include: • Being consistent with use of the
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