Essay About Price-Variable Costs And Vci’S Unit Contribution

Marketing 5150 Financial Solutions
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MKTG 5150 Financial ProblemsProblem 1:Contribution per cd =Selling Price-Variable Costs$9.00-$2.60$6.40Break-Even VolumeUnits=Total Fixed Costs/Contribution Per Cd525,000/$6.4082,031.25Dollars=Total Fixed Costs/Contribution MarginContribution Margin=Contribution per cd/Selling Price$6.40/$9.00=.711$525,000/.711$738,396.62Net Profit if 1 million Cds are sold=Total Sales-Variable Costs-Fixed Costs9,000,000-2,600,000-525,0005,875,000CD Sales Volume needed to achieve $200,000 Profit=Profit+Fixed Costs/Contribution Per cd200,000+525,000/($6.40)113,281.25Problem 2:VCI’s Unit Contribution and contribution marginUnit Contribution=Selling Price-Variable costs($20.00-$8.00)-($4.00-.50-.50)$7.00Contribution Margin=Unit Contribution/Selling Price$7.00/$12.00.583 or 58.3%Break-Even in Units? Dollars?Units=Fixed Costs/Unit Contribution$175,000/$7.0025,000Dollars=Fixed Costs/Contribution Margin$175,000/.583$300,172Market Share to achieve 20% return in one yearMarket share=Units required/market size(fixed costs and return/unit contribution)/market size($205,000/$7.00)/(100,000)29.3%Problem 3Absolute increase in unit sales and dollar sales?Rash-Away $150,000/.60250,000$150,000/($2.00-$1.40/$2.00)$500,000$150,000/.75200,000$150,000/($1.00-$1.25/$1.00)$200,000Additional sales to cover $1.00 of incrementalIncremental advertising/contribution margin$1.00/.30$3.33-Rash Away$1.00/.75$1.33 Red AwayAbsolute increase in unit sales and dollars?(1.80-1.40)x=$600,0001,500,000-1,000,000500,000(.40/1.80)x=$600,000$2,700,000-$2,000,000$700,000(.90-.25)x=$1,125,0001,730,769-1,500,000230,759(.65/.90)x=1,125,0001,557,692-$1,500,000$57,692Problem 4At what price?$.50-.10-.04$.36Contribution per unit$.36-$.18-$.06-$.04$.08Break EvenTotal Fixed Costs/Contribution Per Unit$340,000/$.084,250,000First Year Break Even ShareBreak Even Units/(Market size*Market percentage served)4,250,000/(.65*21,000,000)31%Problem 5No they should not add the line because it would be a loss of $380.($175.00-$100.00) x 1982=$148,650($250.00-$125.00 x 946=$118,250($300.00-$140.00)x 392=$62,750($375.00-$225.00) x 300=$45,000$148,650+$118,250+$62,750+$45,000=$374,620$374,620-$355,000=$19,620$19,620-$20,000-$380Problem 6It would be a great investment to add the DC6900-X model to the line. The net increase would be $363,000,000.(500,000*$1,300)+(250,000*$3,700)=$1,575,000,000(250,000*$2,100)+(250,000+$2,100)=$1,050,000,000(600,000*$1,300)+(400,000*3,700)=2,260,000,000Fixed Costs=$2,000,000$1,575,000,000+$1,050,000,000-$2,260,000,000-$2,000,000$363,000,000Problem 7No the company should not continue with the development of the product0-17,500,0001-$17,500,000.0016,100,0000.833$5,081,300.0027,400,0000.694$5,135,600.0037,000,0000.579$4,053,000.0045,500,0000.482$2,651,000.00-$579,100.00Yes the company should continue with the development of the product.0-17,500,0001-$17,500,000.0016,100,0000.87$5,307,000.0027,400,0000.756$5,594,400.0037,000,0000.658$4,606,000.0045,500,0000.572$3,146,000.00$1,153,400.00Problem 8Customer Lifetime Value=$M[1/1+i+r]($19.95-.50-.50)[1/1+.01-.788]$85.36Customer Retention$18.75/1+.01-r$18.75=$85.36+.8536-$85.36r-$67.36=-$85.36r.7903=r.7903-.788..23%Problem 9Proforma IncomeStatement(Baseline Data Sales$25,000,000 Cost of Goods Sold$12,500,000 Gross Margin$12,500,000 Marketing ExpensesSales Expenses$6,750,000 Advertising$1,650,000 Freight Expenses2,000,000$10,400,000 General and Adminstrative ExpensesAdministrative Overhead300,000Manufacturing Overhead600,000Staff Salaries250,000$1,150,000 Net Profit Before (Income Tax0950,000Proforma Income Statement (Revenues)Sales$20,000,000 Cost of Goods Sold$10,000,000 Gross Margin$10,000,000 Marketing ExpensesSales Expenses$6,000,000 Advertising$1,400,000 Freight Expenses1,600,000$9,000,000 General and Adminstrative ExpensesAdministrative Overhead300,000Manufacturing Overhead600,000Staff Salaries250,000$1,150,000 Net Profit Before (Income Tax0-150,000