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Breakeven Analysis: Innovative Sports

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Innovative Sports sells a patented golf trainer called the Puttmaster. This device, sells for $69.95. The Puttmaster is sold through a distributor who sells to retail stores. The distributor pays Innovative Sports $30.85 for each Puttmaster. Innovative Sports also sells them through 30-min television infomercials for $69.95 plus $15.95 for shipping and handling. But for every 10 Puttmasters sold via the infomercial, two units will not be sold in a retail outlet.

For each unit sold on the infomercial, Innovative Sports pays $5.80 to the shipping co. and $2.00 to the phone-answering company. Innovative sports purchases Puttmasters from the manufacturer, which produces them for $9.55.

A 30-min infomercial costs $845,000. Innovative Sports is now deciding how many 30-min infomercials to purchase over the next three months. Innovative Sports estimates the first 30-min will yield 22,000 unit sales. Each subsequent showing of the infomercial will yield only 90% of the units sold following the previous infomercial.

How many 30-min infomercials should Innovative Sports purchase for the next 90-days? What are the steps that I should take to make this problem easier to layout and then solve? Look for breakeven units and sales. The $9.55 is confusing me as to whether its part of the variable costs.

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Solution Summary

This solution calculates how many infomercials Innovative Sports should purchase.

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