How many new retail accounts must the company acquire to break even on this tactic?

Question:

Tyson Foods is the largest U.S. beef and chicken supplier, processing more than 100,000 head of cattle and 40-plus million chickens weekly. Their primary distribution channels are supermarket meat departments. However, the company is now expanding distribution into convenience stores. There are almost 150,000 gas stations and convenience stores where the company would like to sell hot Buffalo chicken bites near the checkout. This is a promising channel, as sales are growing considerably at these retail outlets and pro´t margins on prepared foods are higher than selling raw meat to grocery stores. Tyson will have to hire 10 more sales representatives at a salary of $45,000 each to expand into this distribution channel because many of these types of stores are independently owned. Each convenience store is expected to generate an average of $50,000 in revenue for Tyson. Refer to Appendix 2: Marketing by the Numbers to answer the following questions.

1.If Tyson’s contribution margin is 30 percent on this product, what increase in sales will it need to break even on the increase in fixed costs to hire the new sales reps?

2.How many new retail accounts must the company acquire to break even on this tactic?

3. What average number of accounts must each new rep acquire?

Tyson Foods

1. When the company breaks even the margin resulting from the increase in sales = salary of sales reps 0.30x = 10 * $45000 x= $150,0000.

Therefore, the increase in sales = $150,0000

2. The number of retail accounts

= Increase in sales/ revenue from one store

= 150,0000/50000

= 30 retail stores.

3. There are 10 reps, therefore the average number of accounts for each sales rep

= 30/10

= 3 accounts.

Explanation:

Breakeven in sales dollars and units are achieved when the total cost = the total revenue.  At this point, there is no loss and no profit.  When the company achieves more sales above the break-even point, it makes a profit.  If it does not reach the point, it incurs some loss.