Solution of Strategic Marketing Problems Chapter 2

MKT 2375

Chapter 2 Problem 1 a. CD Contribution Profit
Selling Price to CD Distributor
Less: Variable Cost

$9.00 $1.25 $0.35 $1.00 $2.60

CD Package and disk Songwriter’s royalties Recording artists’ royalties Total Variable Cost

Contribution per CD unit

$6.40

Chapter 2 Problem 1 b. Break-Even Analysis – Units and Dollars
Total Fixed Cost

Advertising and Promotion $275,000 Studio Recording’s Overhead $250,000 Total Fixed Cost $525,000

BEVU = $525,000 / $6.40 = 82,031.25 units
BEV $ = 82,031.25 units x $9.00 = $738,281.25

Chapter 2 Problem 1 CONTRIBUTION MARGIN
Total Fixed Cost

Advertising and Promotion $275,000 Studio Recording’s Overhead $250,000 Total Fixed Cost $525,000
BEV$ = $525,000 / 0.711 =

CD Selling Price = $9.00 Contribution Profit = $6.40

$738,396.62
Versus $738,281.25

Contribution Margin = $6.40 / $9.00 = .711 of 71.1%

Difference Due To Rounding of Contribution Margin

Chapter 2 Problem 1 c. Calculate the net profit if 1 million CDs are sold Total Sales (1M CDs x $9) Less: Tot Variable Costs (1M x $2.60) Less: Total Fixed Cost $9,000,000 $2,600,000 $ 525,000 Net Profit $5,875,000

Chapter 2 Problem 1 d. CD unit volume to achieve a $200,000 profit Profit Objective Fixed Cost Contribution per Unit $200,000 $525,000 $6.40

$525,000 Fixed Cost + $200,000 Profit Objective $6.40 Contribution per Unit

= 113,281.25 units

CHAPTER 2 Problem 2

a. VCI’s Contribution and Contribution Margin Selling Price for VCI Less: Retailer Margin $20.00 $-8.00
Suggested Retail Price Retailer Margin (40% of suggested retail price)

VCI Selling Price
Variable Cost Per Unit
1. 2. 3. Copy Reproduction ($4,000/1000) = $4.00 Label & Package Mgr. ($500/1000) = $0.50 Royalties ($500/1000) = $0.50

$12.00

Contribution Profit & Margin Contribution Profit = $12.00 - $5.00 = $7.00 per unit Contribution Margin = $7.00 / $12.00 = 0.583

Total Variable Cost =

$5.00

or 58.3%

1. Contribution Profit =