Answer:
a) Contribution margin= $6,4
b) break-even point:
in units=76562 cds
in dollars=$869058
c) Net profit= $5910000
d) Q=107813 cds
Explanation:
Variable costs:
CD package and disc $1.25/CD
Songwriters’ royalties $0.35/CD
Recording artists’ royalties $1.00/CD
<u>Total Variable costs= $2,6</u>
Fixed Costs:
Advertising and promotion $275,000
Studio Recordings$215,000
Total fixed costs= $490000
Price=$9
a) contribution margin= Price- variable costs= 9-2,6= $6,4
b) break-even point:
in units=fixed costs/contribution margin=490000/6,4= 76562 cds
in dollars= fixed costs/(contribution to sale ratio)
in dollars= fixed costs/(contribution margin/price)
in dollars= 490000/(6,4/9)= $869058
c) q=1000000
sales= 9000000 (1000000*9)
variable costs= -2600000 (1000000*2,6)
fixed costs= -490000
Net profit= $5910000
d)Profit= 200000 q=?
using the break-even formula
Q=(fixed cost+profit)/contribution margin
Q=690000/6.4=107813 cds
