1 Maybelline recently introduced a highend lip balm called B

1. Maybelline recently introduced a high-end lip balm called Baby Lips. The national target market is female, age 24 – 34, income $45,000 and higher. The current price is $5.00. Fixed costs are estimated at $8,775,000. Variable costs are currently $2.25. Maybelline believes that it can reduce cost of goods sold, due to favorable contract negotiations with ingredient suppliers for shea butter, centella and anti-oxidants. As a result, variable costs are predicted to decline by $0.50. Maybelline is debating whether to pass the cost savings on to the consumer or to maintain the current price. What would be the change in Maybelline\'s breakeven volume (in tubes, +/-) if the company maintains the current price? Round your answer to the nearest whole number.

2.Maybelline is contemplating the introduction of a high-end lip balm, tentatively called Baby Lips. The national target market would be female, age 24 – 34, income $45,000 and higher. The anticipated price would be $5.35. Fixed costs are estimated at $7,250,000. Variable costs will be $2.05. The market for this product category is estimated to be 22,500,000 tubes. What market share would Maybelline need to capture in order for Baby Lips to breakeven? Report your answer as a percent, rounded to one decimal place.

Solution

Ooriginal Break even units: Selling price 5 Less: Variable cost 2.25 Contribution margin per unit 2.75 Total fixed cost 8775000 Divide: Contribution margin per unit 2.75 Break even units 3190909 Revised Break even : Selling price 5 Less: variable cost per unit (2.25-0.50) 1.75 Contribbution margin per unit 3.25 Total fixed cost 8775000 Divide: Contribution margin per unit 3.25 Break ven unit revised 2700000 Change in Break even volume: 3190,909-2700000 =490,909 (Decrease) Req 2: Selling price 5.35 Less: variable cost 2.05 Contribution margin per unit 3.3 Total fixed cost 7,250,000 Divide: Contributiton margin per unit 3.3 Bbreak even sales in units 2196969.7 market sales 22,500,000 % share required 9.76%