Contribution Margin per Unit (Based on Averages Given in Footnote of Ex 4)
1st Year Margin Manufacturer Selling Price per Shirt
$17.87
Less Cost of Goods Sold
$10.82
$7.05
Less Trade Promotion
$0.89
$6.16
(5% of MSP) Less: Ad Allowance (Co-Op Adv)
$0.36
(10% of MSP, 20% qualify -.20 X .10 X $17.87) 1st year Margin per Shirt
$5.80 2nd Year Margin
1st year Margin per Shirt
$5.80
Less Royalty Payments
$0.83
(5% of MSP -- .05 X $17.87)
$4.96
2-Year Break-even Assume margin is average. of 1st and 2nd year margins $5.80 + $4.91 = $10.71 / 2 = $5.36 $2,810,000 / $5.36 = 530,000 Shirts Year 1 Breakeven $1,455,000 / $5.80 = 250,862 Shirts Year 2 Breakeven $1,355,000 / $4.91 = 276,000 Shirts
Simplest Estimate
$2,810,000 / $4.96 = 566,000 Shirts
2 – Year Forecast -- Demand Analysis Target Audience (ad campaign target of 15 and over) Awareness 25%, assume to be even over 2 years 25% / 2 = 12.5% 100,000,000 X .125 Interested in Product Category 185/1000 based on survey screening 185/1000 = .185 X 12,500,000
100,000,000
12,500,000
2,312,500
Trial – Purchase 1 shirt Assumed 60% of Definitely would buy(38%) [.38 x .60 = .228] .228 X 2,312,500
527,250
Adopters – Repeat Purchase 50% of 1st year buyers will repeat buy in year 2 527,250 / 2 = 263,625 x 50%
131,813
Total Estimated Demand over 2-Year Period
659,063
Fixed Costs of 2-Year Marketing Program
2-years
1st Year
Retail Displays (10,000 x $100)
$1,000,000
$500,000
$500,000
Advertising
$1,200,000
$600,000
$600,000
Additional Salespeople (3 for 2 years @ $85,000)
$510,000
$255,000
$255,000
Licensing Fee Fixed for 1st year only
$100,000
$100,000
0
$2,810,000
$1,455,000 $1,355,000
Totals
1. Assume budget items will be spent evenly over the two years 2. Note no expenses listed for new sales force
2nd Year
