Marketing Math

Antons Trifonovs
HW 1,3,4,5,7
9/29/2014
1.
Variable Costs
CD package and disc (direct material and labor per CD)---- $1.25/CD songwriters royalties $0.35/CD recording artist royalties $1.00/CD
Total Variable Costs per Units = $2.60

Fixed Costs advertising and promotion $275,000 studio recording overhead $250,000
Total Fixed Costs = $525,000

a)contribution per CD unit
$9 - $2.60 = $6.40

b)break-even volume in CD units and dollars
525,000 / 6.40 = 82,031.25 units
82,031.25 x $9 sales price = $738,281.25 Dollars

c)net profit if 1 million CD's are sold
(1,000,000 - 82,031.25) x 6.40 = $5,875,000

d)CD unit volume necessary to achieve a $200,000 profit
(525,000 + 200,000) / 6.40 = 113,281.25 units

3.
Rash-Away: Contribution Margin = $2.00 - $1.40 = 30% $2.00
Absolute Increase in Unit Sales = $150,000 = 250,000 units $.60
Absolute Increase in Dollar Sales = $150,000 = $500,000 .30
Red-Away: Contribution Margin = $1,00 - $.25 = 75% $1.00
Absolute Increase in Unit Sales = $150,000 = 200,000 units $.75
Absolute Increase in Dollar Sales = $150,000 = $200,000 .75

b)
Rash-Away:
$1.00 incremental advertising = $3.33 30% contribution margin Sales $3.33 Variable Costs (70%) 2.33 Contribution Margin (30%) $1.00 Incremental Fixed Cost 1.00 Profit 0
Red-Away:
$1.00 incremental advertising = $1.33 75% contribution margin Sales $1.33 Variable Costs (25%) .33 Contribution Margin (75%) $1.00 Incremental Fixed Cost 1.00 Profit 0

c)
Rash-Away:
Current Contribution Dollars = 1,000,000 units x $.60 = $600,000
New Price and Contribution with 10% Price Reduction = $1.80 Unit Price 1.40 Unit Variable Costs $.40 Unit Contribution or 22.22% Contribution Margin ($.40/$1.80)
$.40(x) = $600,000 , where x = units