Chapter Two Problems Analyses in Marketing Decision-Making

Question #1 1a. Calculate the Contribution Per CD Contribution=Selling Price Variable Costs
Selling Price to CD Distributor Variable Costs CD Package and Disk Songwriter Royalties Recording Artist Royalties Contribution Per CD $9.00 $2.60 $1.25 $0.35 $1.00 $6.40

1b. Calculate the Break-Even Volume in Units Unit Break-Even = Total Fixed Costs/Contribution Per Unit
Fixed Costs Advertising and Promotion Studio Overhead $525,000 $275,000 250,000

Contribution Per Unit Unit Breakeven

$6.40 82031.25

1b. Calculate the Break-Even Volume in Dollars Contribution Margin=Contribution Per Unit/Selling Price
Selling Price Contribution Per Unit Contribution Margin $9.00 $6.40 71.10%

Dollar Break-Even = Total Fixed Costs/Contribution Margin

Total Fixed Costs Contribution Margin Dollar Break-Even $525,000 71.10% $738,397

1c.Calculate the Net Profit if 1 Million CDs are Sold

Total Sales ($9 x 1,000,000) Total Variable Cost ($2.60 x 1mm) Total Fixed Cost Net Profit $9,000,000 $2,600000 $525,000 $5,875,000

1d.

Calculate the Necessary CD Unit Volume to Achieve a $200,000 Profit

Unit Objective = (Fixed Cost + Profit Objective) /Contribution Per Unit

Fixed Cost Profit Objective Contribution Per Unit Unit Objective $525,000 $200,000 $6.40 113,282

Question #2 2a. What is VCIs Unit Contribution and Contribution Margin? Reference Price = Suggested Retail Price Retailer Margin
Suggested Retail Price 40% Retailer Margin Reference Price $20.00 $8.00 $12.00

Unit Contribution=Reference Price Unit Variable Costs Contribution Margin = Unit Contribution/Reference Price
Reference Price Unit Variable Cost Copy Reproduction Label and Package Royalties Unit Contribution Contribution Margin $4.00 .50 .50 $7.00 58.3% $12.00 $5.00

2b.

What is VCIs Unit Break-Even and Dollar Breakeven? Unit Break-Even = Total Fixed Costs/Contribution Per Unit Dollar Break-Even = Total Fixed Costs/Contribution Margin

Fixed Costs Distribution Rights Label Design Advertising Package Design Unit Contribution Contribution Margin Unit Break-Even Dollar Break-Even

$175000 $125000 $5,000 $35,000 $10,000 $7.00 58.3% 25,000 $300,172

2c.What Share of the Market Would the Film Have to Achieve to Earn a 20% Return on Investment? Unit Sales Objective = (Total Fixed Costs+ 20% ROI)/Contribution Per Unit Unit Market Share = Unit Sales Objective/Market Size
Fixed Costs 20% ROI (150,000 x .20) Contribution Per Unit Market Size Unit Sales Objective Unit Marketshare $175000 $30,000 $7.00 100,000 29,286 29.3%

Question #3 3a.What Absolute Increase in Unit Sales and Dollar Sales Is Necessary to Recoup $150,000 in Advertising Expense? Unit Sales Objective = Cost to Cover/Contribution Per Unit Dollar Sales Objective = Cost to Cover/Contribution Margin
RASH-AWAY RED-AWAY $150,000 $150,000 $2.00 $1.40 $0.60 30% A/C A/E 250,000 $500,000 $1.00 $.25 $0.75 75% 200,000 $200,000

A. Cost to Cover B. C. D. E. Unit Price Unit Variable Costs Contribution Per Unit Contribution Margin

Unit Sales Objective Dollar Sales Objective

3b.

How Many Additional Dollars in Sales Must be Produced to Cover Each Dollar of Advertising? Extra Sales Dollars = $1/Contribution Margin
Contribution Margin Extra Sales Dollars RASH-AWAY RED-AWAY 30% 75% $3.33 $1.33

3c. What Increases in Unit and Dollar Sales Will be Required to Maintain the Current Total Contribution Dollars After a 10% Price Cut? Required Unit Sales=Current Contribution Dollars/Contribution Per Unit Required Dollar Sales=Current Contribution Dollars/Contribution Margin
Current Price Current Unit Sales Current Contribution Current Contribution Margin A. Current Contribution Dollars New Price B. New Contribution Per Unit After Price Cut C. New Contribution Margin After Price Cut RASH-AWAY RED-AWAY $2.00 $1.00 1,000,000 1,500,000 $.60 30% $600,000 $1.80 $.40 22.2% $.75 75% $1,125,000 $.90 $.65 72.2%

Required Unit Sales Current Unit Sales Increase in Unit Sales Required Dollar Sales Current Dollar Sales Increase in Dollar Sales

A/B

1,500,000 1,000,000 500,000 $2,700,000 $2,000,000 $700,000

1,730,769 1,500,000 230,769 $1,557,692 $1,500,000 $57,692

A/C

Question #4 4a. At what price will Diversified Citrus Industries be selling their products to wholesalers?

Retail Price to Consumer

$.50

-20% Margin ($.10)

Price to Retailers

$.40

-10% Margin ($.04)

Price to Wholesalers

$.36

4b. What is the contribution per unit for ZAP?

Unit Selling Price Variable Cost Per Unit Material Labor Coupon (1/5 x $.20 = $.04) Contribution Per Unit

$.36 $.28 $.18 $.06 $.04 $.08

4b. What is the break-even unit volume in the first year? Break-Even Units = Fixed Costs / Contribution Per Unit
Fixed Costs Advertising Overhead Contribution Per Unit Break-Even Units (cans) $340,000 $250,000 $90,000 $.08 4,250,000

4c. What is the first year break-even share-of-market? Break-Even Share of Market = B.E. Volume / Served Market Size

Break-Even Units U.S. Market Size Served Market Size (.65 x 21m)

4,250,000 21,000,000 13,650,000

Break-Even Share of Market

31.1%