Financial/Analytical Question #1 (FAQ#1): note that there are conceptual issues in each of the Financial/Analytical Assignments. You should specifically identify any assumptions that you make and justify the decision(s) made.

Hints:

1. THE MANUFACTURERS PRICE NEEDS TO BE ADJUSTED FROM THE RETAIL PRICE TO REFLECT THE COSTS OF DISTRIBUTION;

2. CAREFULLY REVIEW THE DEFINITION OF MARKET IN DETERMINING THE BREAK EVEN MARKET SHARE;

3. DISTINGUISH BETWEEN RELEVANT AND SUNK COSTS;

4. NOTE THE DIFFERENCE BETWEEN UNIT CONTRIBUTION AND UNIT CONTRIBUTION MARGIN.

1. Hardin Manufacturing Corp. is considering marketing their new hearing aid in the city of Big Smoke. The primary target market for this device is the hearing impaired over the age of 60 years. As she considers the possibility, the VP/Marketing reviews the following data for FY 2022:

Retail price : $499

Retail margin : 47.5%

Wholesale margin : 22.5%

R & D on hearing aid, FYs 2020, 2021 : $109,000

Introductory promotional outlays, FY2022: $159,000

Hardins fixed manufacturing costs : $149,000 per year (FY 2022)

Variable manufacturing costs/unit : $99

Hardins sales commission paid : 5% of manufacturers selling price

Population of Big Smoke : 2,750,000

Proportion of population over 60 years : 22.5%

1. What is Hardins (show your logic)

1. ($) unit contribution? 400 (2.5)

2. (%) unit contribution margin? (2.5)

(b) How many units must Hardin sell in the first year (2022) to break even? Carefully explain, including any assumptions that you make. (6)

3. If 20% of the over 60 population is hearing impaired, what is Hardins break-even market share in 2022? (Identify and explain any assumption(s) that are necessary). (6)

(d) Hardins VP of Marketing has suggested the elimination of the wholesalers in the distribution system. To compensate the following adjustments are proposed:

1. Retail margin increases from 47.5% to 52.5%;
2. Hardins sales commission rate increases from 5% to 7.5% of manufacturers selling price.

What % sales decrease could be endured if profitability (measured by Total Contribution) is to be maintained? (3)