Breakeven Analysys, Marketing Management

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Breakeven Analysis

Campbell Soups has set up a factory in Hong Kong at an estimated cost of $3.1 Million. In the first few years of operation, its product line will consist of duck soup and egg noodle soup to be sold in 16 oz. cans. The factory can make 900,000 cans of soup a month (any combination of the two varieties).

Cost estimates for the product line is as follows:

Material cost/can: 5 cents (egg noodle), 20 cents (duck)
Labor cost per can: 18 cents (both types of soup)
Promotional costs: 10% of sales
Product line launch: $720,000 (covers both soups)
Administrative costs: $230,000 per year

Campbells will price the duck soup at $1.20 per can, and the egg noodle soup at $0.70 per can.
It expects to sell twice as many cans of duck soup as egg noodle soup.

(a) At break-even, how many cans of each type of soup would Campbell soups have sold?
(b) How soon can Campbell Soups break-even, assuming it can operate at full factory capacity?

(Hint: First calculate the unit contribution margin for each soup; then use the sales ratio to figure out how many units of each soup Campbell’s would sell – this will allow you to calculate TOTAL contribution from both soups. Subtract any recurring fixed costs from this number, and then figure out time to BE on the one-time fixed costs).

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