Kp Questions 1-9 Answers + Work

1. Calculate the

a. Contribution per CD unit

a.i. (Unit selling price – Unit variable costs)

a.ii. ($9.00 – (1.25+0.35+1) )

a.iii. Contribution per CD unit: $6.40 per CD unit

b. Break-even volume in CD units and dollars

b.i. Unit break-even volume = (Total dollar fixed costs / contribution unit)

b.ii. ((275,000+250,000) / 6.40)

b.iii. 82031.25, rounded up since you can’t have .25 of a CD, to break even you need 82032 CDs to break even.

b.iv. Contribution margin = (Unit selling price – unit variable cost) / unit selling price = 71.111%

b.v. Break-even dollar volume = total fixed costs / contribution margin

b.vi. $525,000 / .71111 = $738282.40 dollar amount to break even.

c. Net profit if 1 million CDs are sold

c.i. Net Profit = (Sales Units + Sales) – (Fixed Costs + Variable Costs)

c.ii. Net Profit = (1,000,000 + 9,000,000 ) - (525,000 + 2,600,000)

c.iii. Net profit after fixed and variable costs = $5,875,000

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

d.i. Unit volume needed to achieve $200,000 = (total dollar fixed costs + dollar profit goal)/contribution per unit

d.i.1. (525,000 + 200,000) / $6.40

d.i.2. 113281.25 or 113282 rounded up necessary CD units to achieve $200,000 profit

2. Calculate the

a. Unit contribution and contribution margin

a.i. Retailer margin= selling price – 40%

a.ii. $20 – 8 = $12 after retailer margin

a.iii. Unit contribution = selling price – reproduction cost – manufacture cost – royalties

a.iv. Unit contribution = $12 – 4 – 0.5 – 0.5

a.iv.1. Contribution per unit = $7

a.v. Contribution margin = contribution per unit / selling price ~ 7 / 20

a.v.1. Contribution margin = .35 or 35%

b. break-even point in units and in dollars

b.i. break even (units) = total fixed cost / contribution per unit

b.i.1. advertising + package + label + distritribution / $7

b.i.2. $175,000 / $7

b.i.3. break-even point in units = 25,000

b.ii. break even (dollar) = total fixed cost / contribution margin

b.ii.1. $175,000 / 0.35

b.ii.2. break-even in dollar = $500,000

c. share of the market the film to earn a 20% return on investment the first year

c.i. 20% return on investment (150,000) = $30,000

c.ii. net profit = contribution – fixed costs

c.iii. $30,000 = 7X - $175,000

c.iv. X = 205,000 / 7

c.v. to achieve 30,000 profit, need to sell 29285.71 or 29286 unit. Of the market share (100,000 units), that is 29.286% of market share

3. Calculate the

a. increase in...

a.i. increase in unit sales for rash-away

a.i.1. contribution per unit for rash-away = $0.60

a.i.2. required to break even = (FC / CM) + units volume

a.i.3. ($150,000 / $0.60) + 1,000,000

a.i.4. Unit sales = 1,250,000

a.ii. increase in dollar sales for rash-away

a.ii.1. break even ratio = unit sales to break even x price

a.ii.2. break even ratio = 1,250,000 x 2

a.ii.3. increase in dollars = $2,500,000

a.iii. increase in unit sales for red-away

a.iii.1. contribution per unit for red-away = $0.75

a.iii.2. required to break even = (FC / CM) + units volume

a.iii.3. ($150,000 / $0.75)+ 1,500,000

a.iii.4. Unit sales = 1,700,000

a.iv. increase in dollar sales for red-away

a.iv.1. break even ratio = unit sales to break even x price

a.iv.2. break even ratio = 1,700,000 x $1

a.iv.3. increase in dollars = $1,700,000

b. how many additional sales dollars to cover each $1 of incremental advertising

b.i. for rash-away

b.i.1. total increase in sales for rash-away is $500,000, increase in advertising is $150,000.

b.i.2. so each incremental dollar in advertising will cause $3.33 ($2.00/$0.60) increase in sales

b.ii. for red-away

b.ii.1. total increase in sales of red-away is $200,000 and increase in advertising is $150,000

b.ii.2. so each incremental dollar in advertising will cause $1.33 ($1/$0.75) increase in sales

c. what increase in unit sales and dollar sales will be necessary to maintain the level of total contribution dollars if the price of each product is reduced by 10%?

c.i. Rash-away

c.i.1. if reduced by 10%, it would be $1.80

c.i.2. current contribution = $1,000,000 x 0.60

c.i.3. current contribution = $600,000

c.i.4. new contribution = 600,000 / 0.40 = 1,500,000 units

c.i.5. 1,500,000 units x $1.8 = $2,700,000

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