III. BREAKEVEN POINT AND MARK-UP PROBLEM (15 points): BE SURE TO SHOW ALL OF YOUR WORK FOR FULL OR PARTIAL CREDIT.

Lisa MacIntosh is the product manager for the Genius Smartwatch Manufacturing Company. The company has total fixed costs of $6,090,000 for the coming year. The owner estimates that variable costs for this smartwatch will be $130. The company sells its product directly to selective retailers and the retail selling price will be $450. The Genius Company has priced its smartwatch so that the retailer will earn a 40% markup on the watch. The total market for this style of watch is currently 800,000 and Genius has a 15% market share.

A. What price is the Genius Company charging its retailers for the watch? What is the manufacturers contribution per unit and the contribution margin percentage for each smartwatch sold to the retailer? (3 points)

B. How many units must be sold in order for Genius to break even? Is the smartwatch profitable? What is its profit or loss? (2 points)

C. The Genius company's marketing director wants to generate profits equal to 20% of sales for the watch line. How many units must be produced and sold in order to achieve this target return? What sales revenue must be generated in order to meet this target return? (2 points)

D. Ms. MacIntosh is recommending that the advertising budget be increased by $200,000. As a result of this increased spending on advertising, she expects to increase sales by 8%. Assuming that her forecast is correct, should the advertising budget be increased? What is the break even for the additional expenditure in units? What is the profit impact of such a move? (3 points)

E. Ms. MacIntoshs assistant just got a degree in economics and tells her that instead of increasing the advertising budget, she should decrease the price to the retailer by $20. He estimates that if she decreases the price to the retailer by $20, the company will be able to sell 8% more smartwatches to its retailers than she is currently selling. Mr. Wolf is considering the two alternative actions to increase profits: increase the advertising budget or decrease the price. Assuming her assistants forecast is correct, which action (increase advertising or decrease price) should Ms. MacIntosh recommend? What would the breakeven in units be after the decrease in price? What is the difference in profit between the two actions? (5 points)