Question

You are the marketing manager for Clean Cut, a manufacturer of shaving products. Your company produces several lines of safety razors for men and women. The company markets several lines of razors across a number of retail partners, such as CVS Drugstore. It is currently deciding whether or not to sell its higher end model (the Clozer) via direct selling through the company's website. In evaluating this idea, you are to consider the following set of information: VC Clozer factory labor = $.20/unit VC Clozer raw materials =$.50/unit Clozer administrative overhead = $50,000 Clozer advertising and in-store promotion for retailer sales only = $100,000 Packaging = S. 15/unit Retailer's margin = 10% Shipping and additional packaging (for web sales only) = $.30/unit C Website design and maintenance for website sales only = $45,000 FC Advertising for website sales only = $60,000 Questions: a. What is the contribution per unit for the Clozer if sold retail for $10.00 per unit? b. What is the unit break-even for the Clozer if sold only via direct sales at $9.99 per unit? c. Using the above pricing information, what is the difference in contribution if the company sells 1,000,000 units at retail or if they sell 1,000,000 via a direct website sales? d. The use of the direct website sales is expected to cannibalize retailer sales volume by 30,000 units. Assuming an initial retailer sales projection (that is, sales without cannibalization) of 200,000 units and expected direct sales of 70,000 units, what is the net financial impact of including direct website sales as part of Clean Cut's distribution strategy?

Answer 1

Sol :

a) Contribution per unit = Selling price per unit - Variable costs per unit

  = $10 - ($.20 + $.50 + $.15)

= $9.15

b) Unit break even point = Fixed Costs / (Revenue per unit - Variable cost per unit)

= $50000 / [ $9.99 - ( $.20 + $.50 + $.15)]

= $ 5470.45