Contribution Margin per Unit

(Based on Averages Given in Footnote of Ex 4)

1st Year Margin

Manufacturer Selling Price per Shirt

$17.87

Less Cost of Goods Sold

$10.82

$7.05

Less Trade Promotion

$0.89

$6.16

(5% of MSP)
Less: Ad Allowance (Co-Op Adv)

$0.36

(10% of MSP, 20% qualify -.20 X .10 X $17.87)

1st year Margin per Shirt

$5.80
2nd Year Margin

1st year Margin per Shirt

$5.80

Less Royalty Payments

$0.83

(5% of MSP -- .05 X $17.87)

$4.96

2-Year Break-even
Assume margin is average. of 1st and 2nd year margins
$5.80 + $4.91 = $10.71 / 2 = $5.36
$2,810,000 / $5.36
= 530,000 Shirts
Year 1 Breakeven
$1,455,000 / $5.80
= 250,862 Shirts
Year 2 Breakeven
$1,355,000 / $4.91
= 276,000 Shirts

Simplest Estimate

$2,810,000 / $4.96
= 566,000 Shirts

2 Year Forecast -- Demand Analysis

Target Audience
(ad campaign target of 15 and over)
Awareness
25%, assume to be even over 2 years
25% / 2 = 12.5%
100,000,000 X .125
Interested in Product Category
185/1000 based on survey screening
185/1000 = .185 X 12,500,000

100,000,000

12,500,000

2,312,500

Trial Purchase 1 shirt

Assumed 60% of Definitely would buy(38%)
[.38 x .60 = .228] .228 X 2,312,500

527,250

Adopters Repeat Purchase

50% of 1st year buyers will repeat buy in year 2
527,250 / 2 = 263,625 x 50%

131,813

Total Estimated Demand over 2-Year Period

659,063

Fixed Costs of 2-Year Marketing Program

2-years

1st Year

Retail Displays
(10,000 x $100)

$1,000,000

$500,000

$500,000

Advertising

$1,200,000

$600,000

$600,000

Additional Salespeople
(3 for 2 years @ $85,000)

$510,000

$255,000

$255,000

Licensing Fee
Fixed for 1st year only

$100,000

$100,000

$2,810,000

$1,455,000 $1,355,000

Totals

1. Assume budget items will be spent evenly over the two years
2. Note no expenses listed for new sales force

2nd Year