Case solution_A.docx - XMBA 206 Hohner Musikinstrumente GmbH Co KG Break-Even Analysis 1 What is the unit contribution for Hohner ALL numbers are based

Case solution_A.docx - XMBA 206 Hohner Musikinstrumente...

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XMBA 206 Hohner Musikinstrumente GmbH & Co. KG: Break-Even Analysis 1. What is the unit contribution for Hohner? ALL numbers are based on € except for UNITS The Hohner harmonica retail price = 30 with a 33% contribution margin The distributers’ price = 22.56 and a 12% margin Hohner’s selling price = 20.14 Variable cost for = 2.70 The formula for unit contribution = Selling price p/u - variable cost p/u 20.139 - 2.70 = €17.44 2. What is Hohner’s break-even point? The Break-even point formula (BEP) = fixed expenses / contribution margin p/u Fixed expenses = 900,000 (manufacturing costs) Advertising budget = 500,000 Salary and expenses = 35,000 Sales people = 10% of (800,000 x 20.14)) = 1,611,120 Shipping costs = 0.60 x 800000 = 480,000 Fixed expenses = 3,526,120 Contribution margin per unit = 17.44 p/u = 86.6% BEP / sales= 3,526,120 / 86.6% = €4,071,732 3. What market share does Hohner need to break even? BEP / units = 3,526,120 / 17.44 = 202,197 units 202,197 / 800,000 = 25.3% market share 4. What is Hohner’s profit? 75% of 800,000 = 600,000 units 600,000 – 233,484 = 366,516 366,516 x 20.14 = 7,381,265.7 Profit = €7,381,265.7 5. Industry demand is expected to increase to 900,000 units next year. Schmidt is considering raising his advertising budget to €1 million.

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