MKT Assignment

[1] MONSTER background and set-up.

Coca Cola’s beverage sales have recently been declining and causing concern to the industry leader in this highly competitive market.  Coca Cola, just paid $1.9 billion to acquire a major stake in Monster energy drink, and wants to boost Monster sales to bolster shareholders’ confidence in the wisdom of this expensive transaction.  Monster is currently the #2 energy drink behind Red Bull.  To stimulate Monster sales Coca Cola plans to increase advertising by $3,670,000 and also use coupons for the next year.  Monster typically is sold in 16 oz. cans which retail for $1.92.  Coupons will give consumers $0.50 off of a single can purchase.  Because Monster’s target consumer is not a high user of coupons, Coca Cola estimates that only 1 in 10 single can purchases will be made with the coupon.  Retailers, who have a 47% trade margin, will receive their regular margins and be reimbursed by Coca Cola for any purchases made with coupons.

Coca Cola will use typical distribution networks and sell Monster to distributors who have a 9% trade margin.  The distributors then sell to retailers in their region.  Monster is sold in 90% of the U.S. energy drink market, which is approximately $925 million at manufacturer’s prices.

Incremental fixed overhead costs incurred by Coca Cola for the Monster brand are expected to be $2,100,000 per year.  The only unit variable costs for Monster are $0.19 for materials and $0.47 for labor. 

[A] At what price will Monster be sold to wholesalers?

[B] What is the standard contribution per unit for Monster?

[C] What is the break-even unit volume for the first year?

[D] What is the first-year break-even ($) share of market?

[E] Assume that Monster’s market share increases to 36% after this purchase. If the market does not grow, how long will it take Coca Cola to pay off the purchase price of Monster? Assume advertising costs are constant but coupon costs are only for first year.

[2] ARMANI background and set-up.

Armani manufactures a line of ready-to-wear men’s suits that are distributed to large, upscale retailers.  The line currently consists of three models.  The following data are available regarding each model:

Model                         Retail Selling Price      Cost to Retailer   Armani Variable Cost     Demand/Year

Urbanity                             $250.00                           $120.00                         $75.00                                 5500

Wall Street     $575.00    $250.00                             $90.00                       4750

Esquire                             $1350.00                           $640.00                       $180.00                                 1200

Armani is considering the addition of a fourth model to its line.  This model, the Europa, would retail for $2100 and be sold to retailers for $950.  Armani’s variable cost of this unit is $275.  The demand for the Europa is estimated to be 600 units per year.  Seventy-five percent of the unit sales of the new model is expected to come from other models already being manufactured by Armani (4 percent from Urbanity, 20 percent from Wall Street, and 76 percent from Esquire).  Armani will incur a fixed cost of $50,000 to add the new model to the line. 

[A] Based on the preceding data, should Armani add the Europa to its line of ready-to-wear man’s suits?

[B] Why or why not?  Show your justification for your recommendation[s].