Anton

Antons Trifonovs

HW 1,3,4,5,7

9/29/2014

1.

Variable Costs 

CD package and disc (direct material and labor per CD)---- $1.25/CD 

songwriters royalties $0.35/CD 

recording artist royalties $1.00/CD 

Total Variable Costs per Units = $2.60 

Fixed Costs 

advertising and promotion $275,000 

studio recording overhead $250,000 

Total Fixed Costs = $525,000 

a)contribution per CD unit 

$9 - $2.60 = $6.40 

b)break-even volume in CD units and dollars 

525,000 / 6.40 = 82,031.25 units 

82,031.25 x $9 sales price = $738,281.25 Dollars 

c)net profit if 1 million CD's are sold 

(1,000,000 - 82,031.25) x 6.40 = $5,875,000 

d)CD unit volume necessary to achieve a $200,000 profit 

(525,000 + 200,000) / 6.40 = 113,281.25 units

3.

Rash-Away: Contribution Margin = $2.00 - $1.40 = 30%

$2.00

Absolute Increase in Unit Sales = $150,000 = 250,000 units

$.60

Absolute Increase in Dollar Sales = $150,000 = $500,000

.30

Red-Away: Contribution Margin = $1,00 - $.25 = 75%

$1.00

Absolute Increase in Unit Sales = $150,000 = 200,000 units

$.75

Absolute Increase in Dollar Sales = $150,000 = $200,000

.75

b)

Rash-Away:

$1.00 incremental advertising = $3.33

30% contribution margin

Sales $3.33

Variable Costs (70%) 2.33

Contribution Margin (30%) $1.00

Incremental Fixed Cost 1.00

Profit 0

Red-Away:

$1.00 incremental advertising = $1.33

75% contribution margin

Sales $1.33

Variable Costs (25%) .33

Contribution Margin (75%) $1.00

Incremental Fixed Cost 1.00

Profit 0

c)

Rash-Away:

Current Contribution Dollars = 1,000,000 units x $.60 = $600,000

New Price and Contribution with 10% Price Reduction =

$1.80 Unit Price

1.40 Unit Variable Costs

$.40 Unit Contribution or 22.22% Contribution Margin ($.40/$1.80)

$.40(x) = $600,000 , where x = units...