Reference no: EM131964253

After spending $3,000,000 for research and development, chemists at Alabama Milk Marketing Federation (ACMMF) have developed a new breakfast drink. The drink, called Subai, will provide the consumer with twice the amount of Vitamin C currently available in breakfast drinks. Subai will be packaged in an eight-ounce can and will be introduced to the breakfast drink market, which is estimated to be equivalent to 21 million eight-ounce cans nationally.

One major management concern is the lack of funds available for advertising. Accordingly, management has decided to use newspaper (rather than television) to promote the product in the introductory year in major metropolitan areas that account for 65% of the US breakfast drink volume. Newspaper advertising will carry a coupon that will entitle the consumer to receive $1.00 off the price of the first can purchased. The retailer will receive the regular margin and be reimbursed by ACMMF. Past experience indicates that for every five cans sold during the introductory year, one coupon will be returned. The cost of the newspaper advertising campaign (excluding coupon returns) will be $2,500,000. Other fixed overhead costs are expected to be $900,000 per year.

Management has decided that the suggested retail price to the consumer for the eight-ounce can will be $3.50. The only unit variable costs for the product are $0.68 for materials and $0.32 for labor. The company intends to give retailers a margin of 20% off the suggested retail price and wholesalers’ a margin of 10% of the retailers’ cost of the item.

What is the break-even unit volume in the first year?