After spending $300,000 on research and development, PepsiCo Inc. is rolling out a new drink called Kickstart. Kickstart has Mountain Dew flavor but is made with 5 percent juice and Vitamins B and C, along with an extra jolt of caffeine. Marketing managers hope to boost sales by reaching Mountain Dew fans at a new time of day: morning, as well as those who need extra caffeine in the morning. Kickstart will be packaged in 18 oz. bottles and will be introduced to the breakfast drink market, which is estimated to be 21 million 18oz bottles nationally.

One concern is the lack of funds for marketing. Management had decided to use social media to promote Kickstart in the introductory year and to distribute the product in metropolitan areas that account for 65% of the U.S. breakfast drink volume. A coupon available on social media channels will entitle the consumer to receive $.20 off the price of the first bottle purchased. The retailer will receive the regular margin and will be reimbursed for redeemed coupons. Past experience indicates that for every five bottles sold during the introduction year, one coupon will be redeemed. The cost of the social media advertising will be $250,000. Other fixed overhead costs are expected to be $90,000 per year.

Management has decided that the suggested retail price to consumers for the 18 oz. bottle will be $2.50. The only variable cost for the product is $.72 for materials and $.24 for labor. Retailers will receive a 20% margin on the suggested retail price and wholesalers a margin of 10% of the retailers’ cost.

A. What is the contribution per unit for Kickstart?

B. What is the breakeven unit volume in the first year?

C. What is the first year breakeven market share for Kickstart?

Answer rating: 100% (QA)

Retail Price to consumers 250 120 Price for retailers 208 20 margin ... View the full answer