Sample Questions for Mar 6816

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:

3. The group product manager for ointme nts 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 rash. The price and promotion alternatives recommended for the two products by their respective brand managers included the possibility of using additional promotion or a price reduction to stimulate sales volume. A v olume, price, and cost summary for the two products follows:

CD package and disc (direct material and labor) Songwriters’ royalties

Recording artists’ royalties

Advertising and promotion

Studio Recordings, Inc., overhead Selling price to CD distributor

Calculate the following:

a. Contribution per CD unit and the Contribution Margin 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

$1.25/CD $0.35/CD $1.00/CD $275,000 $250,000 $9.00

Unit price

Unit variable costs Unit contribution Unit volume

Rash-Away

$2.00 $1.40 $0.60 1,000,000 units

Red-Away

$1.00 $0.25 $0.75 1,500,000 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 entitled Touch of Orange. If this film were distributed by VCI directly to large retai lers, 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:

Both brand managers included a recommendation to either reduce price by 10 percent or invest an...