After spending $300,000 for research and development chemists at diversified citrus Industries have developed a new breakfast drink. The drink called Zap will provide the consumer with twice the amount of vitamin c currently available in breakfast drinks. Zap will be packaged in an 8-ounce can and will be introduced to the breakfast drink market, which is estimated to be equivalent to 21 million 8-ounce can nationally. One major management concerns is the lack of funds available for marketing. According management has decided to use newspapers (rather than television) to promote Zap in the introductory year and distribute Zap in major metropolitan areas that account for 65 percent. Newspaper advertising will carry a coupon that will entitle the consumer to receive $.20 off the price. The cost of the newspaper advertising campaign(excluding coupon returns). The cost of the newspaper advertising campaign will be $250,000. Other fixed overhead costs are expected to be $90,000.
Management has decided that the suggested retail price to the consumer for the 8-ounce can will be $0.05. The only unit variable costs for the product are $0.18 for materials and $0.06 for labor. The company intends to give retailers a margin of 20 percent off the suggested retail price and wholesalers a margin of 10 percent of the retailers cost of the item.
At what price will Diversified Citrus industries be selling its product to wholesalers, and what is the contributions per unit for zap and the break-even unit volume in the first year and also what is the first-year break-even share of market