4.0 FINANCIALS

4.1 Break-even Analysis

It is estimated that in its first year on the market, Shades of Mercedes will produce sales revenue of $42,000,000. This sales revenue estimation is based on sales within the United States combined with international sales. The average sales price is $120 with a corresponding variable expense of $80 per pair. Thus the contribution margin per pair of sunglasses is $40 ($120-$80). With estimated fixed expenses of $3,000,000; a net loss is accumulated of 1.6 million dollars.

Table 4.1 Shades of Mercedes First Year Estimate

| |TOTAL |PER UNIT |
|Sales (35,000 units) |$4,200,000 |$120 |
|Less variable expenses |$2,800,000 |$ 80 |
| | | |
|Contribution Margin |$1,400,000 |$ 40 |
|Less fixed expenses |$3,000,000 | |
| | | |
|Net operating income |($1,600,000) | |

Fixed expenses will increase in the second year to compensate for the loss accumulated in the first year. By dividing fixed expenses ($4,160,000) by the contribution margin ($40), the revenue required to break even amount is found; 104,000 units.

Table 4.2 2011: Shades of Mercedes Break-even: 2012

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