Gabriela Blazquez

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School

Florida International University *

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Course

1020L

Subject

Finance

Date

Feb 20, 2024

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docx

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2

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Gabriela Blazquez 1. Executives of Studio Recordings, Inc., produced the latest compact disk, the Starshine Sisters Band, titled Starshine/Moonshine. The following cost information pertains to the new CD: CD package and disc (direct material and labor) $1.25/CD Songwriters’ royalties $0.35/CD Recording artists’ royalties $1.00/CD Advertising and promotion $275,000 Studio Recordings, Inc., overhead $215,000 Selling price to CD distributor $9.00 Calculate the following:  a. Contribution per CD unit  Paticulars Amount ($) Selling Price 9.00 Less: Variable Cost: CD package and disc (direct material and labor) 1.25 Songwriters’ royalties 0.35 Recording artists’ royalties 1.00 Contribution per CD unit 6.40 b. Break-even volume in CD units and dollars Total Fixed cost= 275,000+215,000= $490,000 Contribution margin= 6.40/9.00*100= 71.11% Break-even volume= 490,000/71.11%= $689,073.27 Break-even volume in units= 689,073.27/9.00= $76,564 c. Net profit if 1 million CDs are sold. Particulars Amount ($) Total Contribution 6.40 x 1,000,000 6,400,000 Less: Fixed Cost 490,000 Total profit if 1 million CD are sold 5,910,000 d. Necessary CD unit volume to achieve a $200,00 profit. Desired Sales in units = [(490,000 + 20,000) / 0.7111] / 9.00 Desired sales in units = 79,689 units
2. Video Concepts, Inc. (VCI) markets video equipment and film through a variety of retail outlets. Presently, VCI is faced with a decision as to whether it should obtain the distribution rights to an unreleased film titled  Touch of Orange . If this film is distributed by VCI directly to large retailers, VCI’s investment in the project would be $150,000 and the total market for the film is estimated at 100,000 units. Other data are as follows: Cost of distribution rights for film $125,000 Label design 5,000 Package design 10,000 Advertising 35,000 Reproduction of copies (per 1,000) 4,000 Manufacture of labels and packaging (per 1,000) 500 Royalties (per 1,000) 500 VCI’s suggested retail price for the film is $20 per unit. The retailer’s margin is 40 percent. a. What is VCI’s unit contribution and contribution margin? b. What is the break-even point in units? In dollars? c. What share of the market would the film have to achieve in the first year to earn a 20 percent return on BCI’s investment?
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