# Financial Exercise

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Financial Exercise
Problem 1

1. Calculate the contribution per CD unit Selling price to CD distributor \$9.00 Less: Variable cost CD Package and disk (direct material/labor) \$1.25/unit Songwriter’s royalties \$0.35/unit Recording artists’ royalties \$1.00/unit

Total variable cost 2.60 Contribution per CD unit \$6.40

2. Calculate the break-even volume in CD units and dollars

Total Fixed Cost: Advertising and promotion \$275,000 Studio Recordings, Inc. overhead 250,000 Total \$525,000

Contribution per CD unit (from #1 above) \$6.40

Contribution margin (\$9.00-\$2.60)/\$9.00=.711 or 71.1%

\$525,000
Break-even volume in units = \$6.40 = 82,031.25 units

\$525,000
Break-even volume in dollars = .711 = \$738,396.62

= 82,031.25 x \$9.00 = \$738,281.25

(Difference is due to rounding the contribution margin percent)

3. Calculate the net profit if 1 million CDs are sold

Total Sales (1,000,000 units x \$9.00) \$9,000,000
Less: Total Variable Cost (1,000,000 units x \$2.60) 2,600,000
Less: Total Fixed Cost 525,000 Net Profit \$5,875,000

4. Calculate the necessary CD unit volume to achieve a \$200,000 profit

Profit objective = \$200,000

Fixed cost = \$525,000

Contribution per Unit = \$6.40

\$525,000 Fixed Cost + \$200,000 Profit Objective \$6.40 Contribution per Unit = 113,281.25 units

Problem 2

1. What is VCI’s unit contribution and contribution margin?

Selling price for VCI: \$20.00 Suggested retail price - 8.00 Retailer margin (40% of \$12.00 suggested retail price)

Variable cost per unit Copy Reproduction (\$4,000/1000) \$4.00 Label & Package Mfg. (\$500/1000) .50

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