Marketing

1. Executives of Studio Recordings, Inc. produced the latest compact disc by the Starshine Sisters Band, titled Sunshine/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.’s overhead $250,000

Selling price to CD distributor $9.00

Calculate the following:

a. Contribution per CD unit

b. Break-even volume in CD units and dollars

c. Net profit if 1 million CDs are sold

d. Necessary CD unit volume to achieve a $200,000 profit

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.VCI estimates the total market for the film to be 100,000 units. Other data available 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 to earn a 20 percent return on VCI’s investment the first year?

3. The group product manager for ointments at American Therapeutic Corporation was reviewing price and promotion alternatives for two products: Rash-Away and Red-Away. Both products were designed to reduce skin irritation, but Red-Away was primarily a cosmetic treatment whereas Rash-Away also included a compound that eliminated the...