3.2 - Assignment: Conducting Pricing, Breakeven, and Margin Analysis

Elkins, a manufacturer of ice makers, realizes a cost of $250 for every unit it produces. Its total fixed costs equal $5 million. If the company manufactures 500,000 units, compute the following:

1. unit cost
2. markup price if the company desires a 10% return on sales
3. ROI price if the company desires a 25% return on an investment of $1 million

A company sells its products for $8.50. It has variable costs of $2.50, and fixed costs total $250,000. What must its dollar sales be to break even? How many units must it sell to earn a 20% return on its investment of $100,000?

Perfam is a manufacturer of fragrances for women. It currently sells two brands, one called Allure, which is sold to wholesalers for $40, and another called Beauty, which is sold to wholesalers for $20. It is considering adding a mid-priced brand called Classy for $30. Perfam's variable costs and prices to wholesalers for six ounce bottles are:

Allure

Beauty

Classy (new brand)

Unit selling price

$40.00

$20.00

$30.00

Unit variable costs

$20.00

$10.00

$15.00

Perfam expects to sell 10,000 bottles of the new Classy brand, but 5,000 of those sales will be cannibalized from Allure and 1,000 will be cannibalized from Beauty. Before Perfam considered the new brand, it had expected to sell 11,000 bottles of Allure and 10,000 bottles of Beauty. Should Perfam launch the new Classy brand?