Question

Executives of Studio Recordings, Inc., produced the latest compact disk, the Starshine Sisters Band, titled Starshine/Moonshine. The following cost information pertains to the new CD: CD package and disc (direct material and labor) $1.25/CD Songwriters’ royalties $0.35/CD Recording artists’ royalties $1.00/CD Advertising and promotion $275,000 Studio Recordings, Inc., overhead $215,000 Selling price to CD distributor $9.00 Calculate the following:a. Contribution per CD unitb. Break-even volume in CD units and dollarsc. Net profit if 1 million CDs are soldd. Necessary CD unit volume to achieve a $200,00 profit

Answer 1

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

Total Variable costs= $2,6

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