The variable cost in NewShoes is the unit cost of the product. Fixed costs are the marketing expenses for a region along with the allocated product development expense. Applying the formula with a variable cost of $40, and fixed expenses of $3,500,000, the break-even price for 100,000 units would be: break-even price = $40 + $3,500,000 / 100,000 = $40 + $35 = $75
1. Using the fixed expenses and projected sales from the example, what would the break-even price be if unit cost is $35?
2. If the break-even price is $75, and your target return on sales is 20%, what is the selling price?
− Use the following data for questions 3 & 4 − units sold $100.000 consumer promotions $1,800,000 unit cost $40 personal selling 5 salespeople @ $80,000 each target return on sales 10% dealer promotions $1,200,000 advertising $1,500,000 product development $700,000
3. Calculate the break-even price.
4. What would the selling price have to be to get the target return?
5. What other factors besides break-even should you consider before setting price?