Strategic Marketing Problems Cases and Comments V11. Chapter 2

1a) Contribution per CD unit = Unit Selling Price – Unit Variable Cost = $9.00 – ($1.25 + $0.35 + $1.00) = $6.40
b) Break-even volume in CD units Total Fixed Costs = $275,000 + $250,000 = $525,000 Unit Break-even Volume = Total Fixed Costs/Contribution per unit = $525,000 - $6.40 = 82,031.25units Break-even volume in dollars
Contribution Margin = (Unit selling price – unit variable cost) / unit selling price = ($9.00 – $2.60) / $9.00 = 0.7111 = 71.111%
Break-even Dollar Volume = Total Fixed Costs / Contribution Margin = $525,000 / 0.7111 = $738,282.40
c) Net profit if 1 million CDs are sold
= Total Contribution – Total Fixed Costs = ($6.40 X 1,000,000) - $525,000 = $6,400,000 - $525,000 = 5,875,000
d) Necessary CD unit volume to achieve a $200,000 profit
= (Total Dollar Fixed Costs + Dollar Profit Goal) / Contribution Per Unit = ($525,000 + $200,000) / $6.40
= $725,000 /$6.40 = 113,281.25

2a) VCI’s Unit contribution
= $20.00 – [(4000/1000) + (500/1000) + (500/1000) = $20.00 – ($4.00 + $0.50 + 0.50) = $20.00 - $5.00 = $15.00
Contribution margin
= ($20.00 - $5.00) / $20.00 = $0.75
b) Break-even point in units
Total Fixed Costs = $150,000 + $125,000 + $5,000 + $10,000 + $35,000 = $325,000
Unit Break-even Volume = $325,000 / $15.00 = $21,666,67
Break-even point in dollars
= $325,000 / $0.75 = $433,333.33
c) Share of the market would the film have to achieve to earn a 20% return on VCI’s investment in 1st year
20% return on VCI’s investment (profit goal) = $150,000 X 20% = $30,000
Total market = 100,000units
Unit volume to achieve dollar profit goal = ($325,000 + $30,000) / $15.00 = $23,666.67
Share of market = ($23,666.67 / 100,000) X 100 = 23.67%

3a) Absolute increase in unit sales for Rash-Away
= Fixed costs / Unit Contribution = $150,000 / $0.60 = 250,000units