NewGen Computers is considering manufacturing and launching a new solar-powered laptop. The variable cost associated with manufacturing the laptops is estimated at $250 per unit. The fixed costs for setting up and running a production line for this product are estimated at $100,000 per year. NewGen Computers is planning to sell laptops to electronic retailers at $500 MSP (Manufacturer Selling Price). Retailers would like to make a margin of 40%on the sales of these computers. In order to promote sales, NewGen is planning to have a consumer rebate program in which it would refund 10% of the MSRP (Manufacturer Suggested Retail Price) that consumers paid when purchasing the laptop. NewGen expects that MSRP would be similar across all retail outlets and that, on an average, only 25% of consumers will actually send back a valid form and claim the rebate. There are currently three other manufacturers with similar solar-powered laptops on the market. NewGen estimates that a total of 3,000 units (all brands combined) will be sold per year.
a) What will NewGen's product contribution be? (both in $ and % terms)
b) Calculate the breakeven of this new laptop. What market share would this represent?
c) NewGen seeks a before tax profit margin of at least 15% of revenues. The company expects to sell 700 units of the new laptop per year. Should it launch the new laptop?
The break-even analysis is necessary for any business to find out the required number of sales units so that it could incur no-loss during the period. The break-even analysis consists of fixed cost, sales value, and the fixed cost.
Answer and Explanation: 1
Requirement a & b:
Compute the breakeven point as follows: -
|Computation of breakeven point|
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fromChapter 5 / Lesson 28
See how to calculate break-even point (in units and dollars). See the variables of the break-even point formula and examples. Understand the purpose of break-even analysis.