Question

You are the product manager for Vita-Joy, a consumer product with a retail price of $1.00. Retail margins on the product are 33%, while wholesalers take a 12% margin. Using the indicated supply chain, fill in the yellow boxes with dollar amounts. (Hint: Variable costs at one link of the chain become the price at a previous link in the chain. Begin your Vita-Joy calculations with the customer and move backwards; do not start with the company and move forward).
Variable manufacturing costs for Vita-Joy are $0.09 per unit. Fixed manufacturing costs are $900,000. The advertising budget for Vita-Joy is $500,000. Your salary and expenses total $35,000. Salespeople are paid entirely by a 10% commission. Shipping costs, breakage, insurance, and so forth are $0.02 per unit.
Now answer the following:_______.
1. By filling in the yellow and green boxes, determine the contribution per unit for Vita-Joy.
2. What is Vita-Joy's breakeven point?

Answer 1

Answer and Explanation:

The computation is shown below;

a. Contribution Unit for vita Joy  

Retail Price $1.00      

Retail Margin 33%      

Retail Profit $0.33 (1.00 × 33%)    

Retail Cost $0.67 (1 - 0.33)    

Wholesale Margin 12%      

Wholesale Profit $0.08 (0.67 × 12%)    

Wholesale Cost $0.59 (0.67 - 0.08)    

Manufacturers Selling Price per unit $0.59      

Variable manufacturing cost per unit $0.09      

Variable cost of commission per unit $0.06 (10% × 0.59)    

Variable shipping cost brokerage etc $0.02      

Total Variable cost per unit $0.17 (0.09+0.06+0.02)    

Unit contribution of vita joy $0.42 (0.59 - 0.17)    

2 Now Break even point in unit is

= Total Fixed Costs ÷  Contribution units  

where,

Total fixed cost is

Fixed Manufacturing Cost $900,000      

Advertising cost $500,000      

Product manager's Salary and expenses $35,000      

Total Fixed Costs $1,435,000      

And, the contribution units is $0.42

So the break even point is      

= $1,435,000 ÷ $0.42

= 3,416,667 units