1.Calculate the missing values (6 marks)
Unit Selling Price Variable Cost per unit Unit Sales Total Contribution Margin Total Fixed Costs Net Income
8 150,000 300,000 200,000 B)
180,000 800,000 750,000 D)
20 14 E)
120,000 F) 20,000
2.Breski Company had the following revenue and costs in the most recently completed fiscal year:
Total Revenue (“sales”) 12,000,000
Total Fixed Costs 2,000,000
Total Variable Costs 6,000,000
Total Units Produced and Sold 800,000
a)What is the contribution margin per unit? (2 marks)
b)What is the sales volume at the break-even point? (2 marks)
c)How many units must be produced and sold for the company to have a net income of $1,000,000 for the year? (5 marks)
3.Breski Publishing is doing a financial feasibility analysis for a new book. Editing and pre-production costs are estimated at $45,000. The printing costs are a flat $7,000 for setup plus $8 per book. The author’s royalty is 8% of the publisher’s selling price to bookstores. Advertising and promotion costs are budgeted at $5,000.
a)If the price to bookstores is set at $30 how many books must be sold to break even?
b)The marketing department is forecasting sales of 4800 books at the $30 price. What will be the net income from the project at this volume of sales?
c)The marketing department is also forecasting that if the $30 price is reduced by 10%, unit sales will be 15% higher. What will be the net income from the project at this volume of sales at the reduced price?
d)In a highest cost scenario, fixed costs might be $5000 higher and the printing costs might be $9.00 per book, still keeping the original $30 price/unit. How many books would your break-even volume increase by?
PART B: CASE ANALYSIS – Brüski Ice Cream
Total possible marks: /30
INSTRUCTIONS: Please read the case carefully and answer the questions by typing below the question.
Jan Phillips is the newly hired ice cream product-market manager for North America for Brüski Ice Cream —the world’s leading brand of super premium ice cream (now available in 55 countries) and the market leader in North America. Corporate documents show Brüski Ice Cream is profitable globally, with total sales of more than $900 million. The company saw its sales grow rapidly during the 1990s, but now its markets are facing significant change and very aggressive competition. Phillips is responsible for Brüski Ice Cream’s ice cream strategy planning for North America. Other product-market managers are responsible for Europe, Japan, and other global markets. Therefore, Phillips will be expected to focus only on North America while knowing that “everyone” will be watching her (and North America) for clues about what may happen elsewhere. Overall, ice cream sales in North America have been off 1 to 2 percent in recent years. Still, some new entries have made a big splash. Starbucks, the coffee king, is one such brand. In its first year in grocery-store freezer sections, its Frappuccino bars—in several flavours—were a big hit. Coldstone Creamery is a fast-growing franchise, increasing from 1 store in 1988 to about 1,000 now. Brüski Ice Cream, along with a few other super premium producers, are continuing to grow at rates of 2 to 3 percent. But most other North American super premium producers are reporting flat sales, and some are going out of business. The easy availability of super premium ice cream in supermarkets has hurt some of these producers who sell through ice cream stores, which specialize in take-out cones, sundaes, and small containers of ice cream. It is also thought that, at least in part, the decline in sales growth of super premium ice cream in the North America since the early 1990s is due to competition from other products such as lower-calorie yogurts and low-fat ice cream.
Despite a real concern about healthy diets, North Americans seem to swing back and forth in their yearnings for low fat and rich taste. There is some evidence that “dessert junkies” who want to indulge without too much guilt are turning to low-fat frozen yogourt and low-fat ice cream. This has encouraged a number of super premium ice cream competitors to offer these products too. Brüski Ice Cream, International Dairy Queen, and Baskin Robbins are selling frozen yogurt.
And Kraft—which makes Frusen Glädjè, Edy’s, and Dreyer’s Grand Ice Cream—is among many other ice cream makers that are promoting gourmet versions of low-fat ice cream. Because of the competition from low-fat products, Brüski Ice Cream introduced a line of low-fat super premium ice cream. The low-fat line contains no more than three grams of fat per serving. That compares with six times more grams of fat in a halfcup serving of its full-fat versions. Brüski Ice Cream believes that its low-fat super premium ice cream is better tasting than other alternatives. Its belief is that “people like to make every calorie count.” Having worked on the low-fat item for more than two years, it developed a process whereby a concentration of dairy proteins from lactose-reduced skim milk give a mouth-feel that approximates that of a higher-fat product. Brüski Ice Cream sells its low-fat products in a variety of flavours.
Most ice cream products are considered economy and regular brands—priced at $3 to $6 for 2 litres. Super premium ice cream retails for $3.50 to $4.50 a half-litre, or $9 to $11 for 2 litres. The retail price for a half-litre of Brüski Ice Cream is usually over $5.00. The low-fat version is comparably priced to the full-fat product.
Many other North American ice cream producers have turned to frozen yogurt for growth. Frozen yogurt sales were in a slump for a long time because many people didn’t like the tart taste. But after the product was reformulated it started to win customers. The difference is that today’s frozen yogourt tastes more like ice cream.
The yogurt market leader, TCBY (www.tcby.com), which had sales of only about $2 million in 1983, has risen to over $100 million in sales. It numbers over 2,500 shops worldwide and is franchised in over 67 countries. In North America, yogurt makers are using aggressive promotion against ice cream. TCBY ads have preached: “Say goodbye to high calories—say goodbye to ice cream” and “All the pleasure, none of the guilt.” And the ads for its nonfat frozen yogurt emphasize:
“Say goodbye to fat and high calories with the great taste of TCBY Nonfat Frozen Yogurt.”
Baskin Robbins has introduced yogurt in many of its stores and has even changed its name to Baskin Robbins Ice Cream and Yogurt. Brüski Ice Cream also offers yogurt in most of its stores.
Although the flurry of consumer interest in low-fat yogurt and low-fat ice cream certainly created some new market opportunities, it is not clear how consumers will react to these products over the longer term. One reason is that many consumers who were initially excited about being able to buy a good tasting, low-fat frozen dessert have realized that low fat does not necessarily mean low calorie. In fact, Jan Phillips has been trying to identify a product that Brüski Ice Cream could produce that would offer consumers great taste, low fat, and low calories all at the same time. One possibility she is seriously considering is to introduce a line of sorbets based on exotic fruits like kiwi and mango and that use low-calorie sweeteners. A sorbet is basically the same as sherbet, but European sorbets usually have an icy texture and include less milk. This is the sort of product that Jan Phillips has in mind. She thinks that it might have an upscale appeal and also be different from what is already in the premium ice cream case. On the other hand, calling a product by a different name doesn’t make it really new and different, and basic sherbet has been around for a long time and never been a big seller. Further, consumers don’t think of sorbet in the same way that they think about a rich-tasting bowl of ice cream. You don’t have to convince people that they might like premium ice cream. Sorbet, on the other hand, isn’t something that consumers crave and make a special trip to buy.
Further, Phillips is very conscious that the Brüski Ice Cream brand should stand for high quality and the best ingredients.
Yet, it’s not clear that consumers will think of sorbet as a premium product. Rather, they might just see it as ground-up ice with some flavouring thrown in. But if sorbet isn’t the right-way to go with new-product development, how should Brüski Ice Cream counter the competition from other low-fat ice cream brands like Ben & Jerry’s and other new entries to the super premium category like Coldstone Creamery.
Make sure your answers are concise! Marks will be deducted if your answer is excessively long. In particular, you will lose marks if your answer includes incorrect points, even if it also includes correct points!
1.Perform a SWOT analysis, entering your findings in the table below. Point form is acceptable. Make sure your meaning is clear! For each box, include no more than two items; if there are more than two, only include the two items that you believe to be the most important. (10 marks)