Video Concepts INC VCI markets video equipment and film through a variety of ret
ID: 2357838 • 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 the break even point in units and dollars
Explanation / Answer
a)
b)
c)
Variable costs Contribution Margin per unit = unit selling price - unit variable cost Reproduction of copies per 1,000 = $4,000 per unit = 4,000/1,000 4.00 Manufacture of labels and packaging per 1,000 = $500 per unit =500/1000 0.50 Unit CM = $12 - $5.00 Royalties per 1,000 = $500 per unit = 500/1000 0.50 Total variable cost per unit $ 5.00 Unit CM = $ 7.00 Retail sells price $20 Retail's margin 20 x 0.40 = $ 8.00 Means that VCI's sells price is $20 - $8 = $12.00 Contribution Margin = unit selling price - unit variable cost = $12 - $5 = 58.33% unit selling price $12Related Questions
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