Financial Analysis Scenario Drone Innovations, Inc. (DII) is…
Financial Analysis Scenario Drone Innovations, Inc. (DII) is a local drone manufacturer that is planning to launch a new drone that uses solar technology which will allow the drone to fly 100 times farther and 100 times longer than any existing drone on the market. Cost of research and development is $6,500,000 and the drone market size is currently measured at 60,000,000 of which DII currently serves 40%. Newspaper advertising will carry a coupon that will entitle the consumer to receive $20.00 off the price of each drone purchased. Research has shown that 50% of customers will redeem the coupon. (Hint: coupon redemption is a variable cost). The cost of the newspaper advertising (excluding coupon returns) will be $500,000. Other fixed costs will be $1 million per year. The cost to produce each drone at $40. The finding of several research studies has determined that consumers would be willing to pay $85 for each drone at which the retail selling price would be targeted. The retailer’s margin is 30% and the wholesaler’s margin is 15%. (Hint: selling price used for all questions below is the price at which the manufacturer sells to the wholesaler. The selling price to be used in the BE analysis is NOT $85). (Please type clearly – Round partial units upward. Round percentages to one decimal point. Round currency to dollars and cents.) (a) What is the company’s selling price of one drone to its wholesalers? What is the product’s contribution margin as a percentage? What is the product’s contribution per unit in dollar?
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