Mktg 338 Homework Name___________________________________ Rihanna has released her latest sure-to-go platinum CD titled Good Girl Gone Really Wealthy. Here is how its financial information breaks out: CD Package and Disk $1.25/CD Songwriter?s Royalties $0.35/CD Recording artist?s royalties $1.00/CD Advertising $275,000 Studio Overhead $250,000 CD Selling Price to Retailer $9.00 Calculate the following: Contribution per CD unit Selling price ? variable costs $9 ? $1.25 - $.35 ? $1 = $6.40 Breakeven volume in CD units and in dollars Fixed Costs / Unit Contribution ($275,000 +$ 250,000) / $6.40 = 82,031.25 units Fixed Costs / Contribution Margin ($275,000+$250,000) / ($6.40/$9) = $738,281.25 or 82,031.25 * $9.00 = $738,281.25 Net profit if 1 million CD?s are sold Total Contribution ? Fixed Costs (or Total Revenue ? Var. Costs ? Fixed Costs) ($6.40 * $1,000,000)-($275,000 + $250,000) = $5,875,000 Necessary unit volume to reach $200,000 profit (Fixed Costs + target profit) / Unit Contribution ($275,000 + $250,000 + $200,000) / $6.40 = 113,281 units 2. The retailer charges $18.00 for the CD. What is the retailer?s markup expressed in $? In %? Markup $ = selling price ? wholesale cost $18 ?$ 9 = $9 Markup % = Markup $ / wholesale cost ($18 ? $9) / $9 = 100% What is the retailer?s margin expressed in $? In %? Margin $ = selling price ? wholesale cost $18 ? $9 = $9 Margin % = Margin $ / selling price ($18 ?$9) / $18 = 50%
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