1. Executives of Studio Recordings, Inc., produced the latest compact disk, the
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Question
1. Executives of Studio Recordings, Inc., produced the latest compact disk, the Starshine Sisters Band, titled Starshine/Moonshine. The following cost information pertains to the new CD: CD package and disc (direct material and labor) $1.25/CD Songwriters’ royalties $0.35/CD Recording artists’ royalties $1.00/CD Advertising and promotion $275,000 Studio Recordings, Inc., overhead $215,000 Selling price to CD distributor $9.00 Calculate the following:
a. Contribution per CD unit
b. Break-even volume in CD units and dollars
c. Net profit if 1 million CDs are sold
d. Necessary CD unit volume to achieve a $200,00 profit
Need answer and the step by step work. I need to know why
Explanation / Answer
(a) Computation of the Contribution per CD unit.We have,
(b) Computation of break-even volume in CD units and dollars.We have,
Step1: Computation of total Fixed cost.We have,
Total Fixed cost = Advertising and promotion cost + Studio recordings overhead
Total Fixed Cost = 275,000 + 215,000 = $ 490,000
Step2; Computation of Contribution margin.We have,
Contribution margin = Contribution per unit / Sales per unit * 100
Contribution margin = 6.40 / 9.00 * 100 = 71.11 %
Step3; Computaiton of Break-even volume in dollers.We have,
Break - even volume = Total Fixed Cost / Contribution margin
Break-even voulume = 490,000 / 71.11% = $ 689,073.27
Hence, the Break-even volume in dollers is $ 689,073.27.
Step4: Computation of Break-even volume in units.We have,
Break-even volume in units = Break-even volume in dollers / Selling price per unit
Break-even volume in units = 689,073.27 / 9.00 = 76,564 units.
Hence, the Break-even volume in units is 76,564 units.
(c) Computation of Net Profit if 1 million CDs are sold.We have,
(d) Computation of CD unit volume to achieve a $20,000 profit.We have,
Desired sales in units = [( Total Fixed Cost + Profit ) / Contribution margin ]
Desired Sales in units = [(490,000 + 20,000) / 0.7111] / 9.00
Desired sales in units = 79,689 units
Paticulars Amount ($) Selling Price 9.00 Less: Variable Cost: CD package and disc (direct material and labor) 1.25 Songwriters’ royalties 0.35 Recording artists’ royalties 1.00 Contribution per CD unit 6.40Related Questions
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