Video Concepts INC VCI markets video equipment and film through a variety of ret
ID: 2357827 • Letter: V
Question
Video Concepts INC VCI markets video equipment and film through a variety of retail outlets. presently VCI is faced with a decision as to whether it should obtain the distribution rights to an unreleased film titled Touch of Orange. If this file Is distributed by VCI directly to large retailers, VCI's investment in the project would be $150,000. VCI estimates the total market for the film to be 100,000 units. Other data as follows....
Cost of distribution rights for film $125,000
Label Design $5,000
Package Design $10,000
Advertising $35,000
Reproduction of copies (per 1,000) $4,000
Manufacture of labels and packing (per 1,000) $500
Royalties (per 1,000) $500
VCI's suggested retail price for the film is $20 per unit. THe retailers margin is 40 percent.
What is VCI's Unit Contribution and contribution margin?
Explanation / Answer
Unit Contribution: Unit contribution = Selling price per unit - Variable cost per unit Selling price per unit is $20 Variable cost = Reproduction cost + Manufacture of lables + Royalties = $4,000*100 +$500*100+$500*100 = $500,000 Variable cost per unit = Total variable cost/no of units = $500,000/100,000 = $5 Variable cost per unit is $5 Contribution margin per unit = $20 - $5 = $15 Unit contribution is $15 Contribution margin: Contribution margin =Sales - Variable cost = $20*100,000 - $500,000 = $2,000,000 - $500,000 = $1,500,000 Contribution margin is $1,500,000 Contribution margin =Sales - Variable cost = $20*100,000 - $500,000 = $2,000,000 - $500,000 = $1,500,000 Contribution margin is $1,500,000Related Questions
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