Financial/Analytical Question #1

: note that there are conceptual

issues in each of the Financial/Analytical Assignments.

specifically identify any assumptions that you make and justify the

decision(s) made

.

Hints:

A. THE MANUFACTURERS PRICE NEEDS TO BE ADJUSTED FROM THE

RETAIL PRICE TO REFLECT THE COSTS OF DISTRIBUTION

;

B. CAREFULLY REVIEW THE DEFINITION OF MARKET IN DETERMINING

THE BREAK EVEN MARKET SHARE

;

C. DISTINGUISH BETWEEN RELEVANT AND SUNK COSTS.

1.

Rosenberg 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 2020

:

Retail price

: $399

Retail margin

: 47.5%

Wholesale margin

: 22.5%

R & D on hearing aid, FYs

2017, 2018 : $109,000

Introductory promotional outlays,

FY2020: $159,000

Rosenbergs fixed manufacturing costs :

$149,000 per year (FY 2020)

Variable manufacturing costs/unit

: $79

Retailers

salespersons commission

: 2% of retailers selling price

Rosenberg

s sales commission paid

: 5% of manufacturers selling price

Population of Big Smoke

: 2,750,000

Proportion of population over 60 years

: 22.5%

a)

What is

Rosenbergs (show your logic)

i)

unit contribution?

(4)

ii)

contribution margin?

(4)

(b) How many units must

Rosenberg

sell in the first year (

2020

) to break even?

Carefully explain, including any

assumptions

that you make.

(6)

c)

If 20% of the over 60 population is hearing impaired, what is Rosenbergs

break even market share in

2020

? (Identify and explain any

assumption(s)

that are necessary).

(6)

i added all the information

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:

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

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

C. DISTINGUISH BETWEEN RELEVANT AND SUNK COSTS.

1. Rosenberg 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 2020:

Retail price: $399

Retail margin: 47.5%

Wholesale margin: 22.5%

R & D on hearing aid, FYs 2017, 2018: $109,000

Introductory promotional outlays, FY2020: $159,000

Rosenbergs fixed manufacturing costs : $149,000 per year (FY 2020)

Variable manufacturing costs/unit: $79

Retailers salespersons commission: 2% of retailers selling price

Rosenbergs sales commission paid: 5% of manufacturers selling price

Population of Big Smoke: 2,750,000

Proportion of population over 60 years: 22.5%

a) What is Rosenbergs (show your logic)

i) unit contribution?(4)

ii) contribution margin?(4)

(b) How many units must Rosenberg sell in the first year (2020) to break even? Carefully explain, including any assumptions that you make.(6)

c) If 20% of the over 60 population is hearing impaired, what is Rosenbergs break even market share in 2020? (Identify and explain any assumption(s) that are necessary). (6)

Retail price $399 Retail margin : 47.5% Wholesale margin : 22.5% R&D on hearing aid, FY's 2017, 2018 : $109,000 Introductory promotional outlays, FY2020: $159,000 Rosenberg's fixed manufacturing costs : $149,000 per year (FY 2020) Variable manufacturing costs/unit : $79 Retailer's salesperson's commission : 2% of retailer's selling price Rosenberg's sales commission paid : 5% of manufacturer's selling price Population of Big Smoke" : 2,750,000 Proportion of population over 60 years : 22.5% Financial Analysis in Marketing (Marketing Metrics) A. E. COSTS OPERATING LEVERAGE Profit/volume relationships Variable F. DISCOUNT Programmed ED CASH FLOW Fixed Committed Net cash flow Cost of capital Payback period Projected cash flows (realominal) G. Price Key issues elasticity Price elasticity = Joint costs Relative change in Q Allocation period Relative change in P Unit of analysis Item fixed cost price elasticity Break even Relevant vs. sunk reduced if price is Contribution margin = %CM Percent price reduction = X% "Break even" unit increase = B. MARGINS Gross Z%(% TO BIE) LX (CM-X)*100 = Relative change in P Unit of analysis Item fixed cost price elasticity Break even if price is Relevant vs. sunk reduced Contribution margin = %CM Percent price reduction = X% "Break even" unit increase = B. MARGINS Gross % TO B/E) LX (CM-X) *100 = 2% Trade "elasticity" = 2% Contribution X% Net (before taxes) CONTRIBUTION ANALYSIS Break-even analysis Sensitivity analysis (and) Profit impact Market size Performance measurement Cannibalization D. LIQUIDITY Working capital Current assets Current liabilities Retail price $399 Retail margin : 47.5% Wholesale margin : 22.5% R&D on hearing aid, FY's 2017, 2018 : $109,000 Introductory promotional outlays, FY2020: $159,000 Rosenberg's fixed manufacturing costs : $149,000 per year (FY 2020) Variable manufacturing costs/unit : $79 Retailer's salesperson's commission : 2% of retailer's selling price Rosenberg's sales commission paid : 5% of manufacturer's selling price Population of Big Smoke" : 2,750,000 Proportion of population over 60 years : 22.5% Financial Analysis in Marketing (Marketing Metrics) A. E. COSTS OPERATING LEVERAGE Profit/volume relationships Variable F. DISCOUNT Programmed ED CASH FLOW Fixed Committed Net cash flow Cost of capital Payback period Projected cash flows (realominal) G. Price Key issues elasticity Price elasticity = Joint costs Relative change in Q Allocation period Relative change in P Unit of analysis Item fixed cost price elasticity Break even Relevant vs. sunk reduced if price is Contribution margin = %CM Percent price reduction = X% "Break even" unit increase = B. MARGINS Gross Z%(% TO BIE) LX (CM-X)*100 = Relative change in P Unit of analysis Item fixed cost price elasticity Break even if price is Relevant vs. sunk reduced Contribution margin = %CM Percent price reduction = X% "Break even" unit increase = B. MARGINS Gross % TO B/E) LX (CM-X) *100 = 2% Trade "elasticity" = 2% Contribution X% Net (before taxes) CONTRIBUTION ANALYSIS Break-even analysis Sensitivity analysis (and) Profit impact Market size Performance measurement Cannibalization D. LIQUIDITY Working capital Current assets Current liabilities