Marketing Math Practice
Marketing Math Practice Problems
A. Executives of Studio Recordings, Inc., produced the latest compact disk by the Starshine Sisters Band, titled Sunshine/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 $250,000
Selling price to CD distributor $9.00
Calculate the following:
a. Contribution per CD unit
b. Break-even volume in CD units and dollars
c. Net Profit if 1 million CDs are sold (EBIT)
d. Necessary CD unit volume to achieve $200,000 profit
B. Time Saver Systems (TSS) manufactures a line of personal digital assistants (PDA’s) that are distributed through cellular providers and large retailers. The line consists of three models of PDAs. The following data are available regarding these models:
PDA Selling Price Variable Cost Demand/year
Model per Unit per Unit (units) Model TSS1 $95 $45 1,000,000 Model TSS2 150 75 500,000 Model TSS3 250 150 250,000
TSS is considering the addition of a fourth model to the line of PDAs. This model would be sold to retailers for $300. The variable cost of this unit is $125. The demand for the new Model TSS4 is estimated to be 300,000 units per year. Sixty percent of these unit sales of the new model is expected to come from other models already being manufactured by TSS (15 percent from Model TSS1, 40 percent from Model TSS2, and 45 percent from TSS3). TSS will incur a fixed cost of $200,000 to add the new model to the line. Based on the above data, should TSS add the new Model LX4 to its line of PDAs? Why?
A. Executives of Studio Recordings, Inc., produced the latest compact disk by the Starshine Sisters Band, titled Sunshine/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 $250,000
Selling price to CD distributor $9.00
Calculate the following:
a. Contribution per CD unit
b. Break-even volume in CD units and dollars
c. Net Profit if 1 million CDs are sold (EBIT)
d. Necessary CD unit volume to achieve $200,000 profit
B. Time Saver Systems (TSS) manufactures a line of personal digital assistants (PDA’s) that are distributed through cellular providers and large retailers. The line consists of three models of PDAs. The following data are available regarding these models:
PDA Selling Price Variable Cost Demand/year
Model per Unit per Unit (units) Model TSS1 $95 $45 1,000,000 Model TSS2 150 75 500,000 Model TSS3 250 150 250,000
TSS is considering the addition of a fourth model to the line of PDAs. This model would be sold to retailers for $300. The variable cost of this unit is $125. The demand for the new Model TSS4 is estimated to be 300,000 units per year. Sixty percent of these unit sales of the new model is expected to come from other models already being manufactured by TSS (15 percent from Model TSS1, 40 percent from Model TSS2, and 45 percent from TSS3). TSS will incur a fixed cost of $200,000 to add the new model to the line. Based on the above data, should TSS add the new Model LX4 to its line of PDAs? Why?