Cambridge Corporation manufactures Product X, a consumer product with a retail price of $7.95. Retailer's margins on the product are 20% and wholesaler's margins are 11%. The most recent annual size of the market is
$280,000,000 annually (based on retail sales), during that period Product X held 17% of this market (in dollars).
The fixed costs involved in manufacturing Product X are $2,500,000 and the variable costs are $0.86 per unit. The
advertising budget for Product X is $1,600,000. Miscellaneous variable costs (e. g., shipping and handling, etc.) are
$0.14 per unit. Salespeople are paid entirely by a 12% commission based on the manufacturer's selling price. Staff
expenses (one product manager) are $120,000.
Based on the information above, address the following:
1. What is Product X's annual market share at the breakeven volume? (3 points)
2. Construct an annual income statement for Product X for the most recent year. (4 points)
Extra credit (up to 6 points)
3. Considering the information above, If you increase advertising expenses by 11% and retail price by 7%, how
many additional (or fewer) units will you need to sell (compared to the most recent year) to maintain the
same operating profits?
NOTE: You must show your work to receive any credit on these calculations.