Video Concepts, Inc. (VCI) markets video equipment and film through a variety of
ID: 2445734 • 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 film is distributed by VCI directly to large retailers, VCI’s investment in the project would be $150,000 and the total market for the film is estimated at 100,000 units. Other data are as follows: Cost of distribution rights for film $125,000 Label design 5,000 Package design 10,000, 4,000 Manufacture of labels and packaging (per 1,000) 500 Royalties (per 1,000) 500 VCI’s suggested retail price for the film is $20 per unit. The retailer’s margin is 40 percent. a) What is VCI’s unit contribution and contribution margin? b) What is the break-even point in units? In dollars? c) What share of the market would the film have to achieve in the first year to earn a 20 percent return on BCI’s investment?
Explanation / Answer
What is VCI’s unit contribution and contribution margin?
Contribution margin =7/20 =35%
What is the break-even point in units? In dollars?
Break-even point in units = total fixed cost / contribution margin per unit = 175,000/7 =25000 units
Break-even point in dollars = breakeven point in units * retail price per unit = 25,000 x $20 =500,000
c. What share of the market would the film have to achieve to earn a 20% return on VCI's investment the first year?
Variable cost (per unit) Copy reproduction 4.00 (Cost/1000 units) Manufacturing of labels and packing 0.50 (Cost/1000 units) Royalties 0.50 (Cost/1000 units) Retailers commission 8.00 40% of retail price Total variable cost 13.00Related Questions
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