Marketing 5150 Financial Solutions

MKTG 5150 Financial Problems

Problem 1:

1. Contribution per cd =Selling Price-Variable Costs

1. $9.00-$2.60

1. $6.40

1. Break-Even Volume

1. Units=Total Fixed Costs/Contribution Per Cd

1. 525,000/$6.40

1. 82,031.25

1. Dollars=Total Fixed Costs/Contribution Margin

1. Contribution Margin=Contribution per cd/Selling Price

1. $6.40/$9.00=.711
2. $525,000/.711

1. $738,396.62

1. Net Profit if 1 million Cds are sold=Total Sales-Variable Costs-Fixed Costs

1. 9,000,000-2,600,000-525,000

1. 5,875,000

1. CD Sales Volume needed to achieve $200,000 Profit=Profit+Fixed Costs/Contribution Per cd

1. 200,000+525,000/($6.40)

1. 113,281.25

Problem 2:

1. VCI’s Unit Contribution and contribution margin

1. Unit Contribution=Selling Price-Variable costs

1. ($20.00-$8.00)-($4.00-.50-.50)
2. $7.00

1. Contribution Margin=Unit Contribution/Selling Price

1. $7.00/$12.00
2. .583 or 58.3%

1. Break-Even in Units? Dollars?

1. Units=Fixed Costs/Unit Contribution

1. $175,000/$7.00
2. 25,000

1. Dollars=Fixed Costs/Contribution Margin

1. $175,000/.583
2. $300,172

1. Market Share to achieve 20% return in one year

1. Market share=Units required/market size

1. (fixed costs and return/unit contribution)/market size
2. ($205,000/$7.00)/(100,000)
3. 29.3%

Problem 3

1. Absolute increase in unit sales and dollar sales?

1. Rash-Away $150,000/.60

1. 250,000

1. $150,000/($2.00-$1.40/$2.00)

1. $500,000

1. $150,000/.75

1. 200,000

1. $150,000/($1.00-$1.25/$1.00)

1. $200,000

1. Additional sales to cover $1.00 of incremental

1. Incremental advertising/contribution margin
2. $1.00/.30

1. $3.33-Rash Away

1. $1.00/.75

1. $1.33 Red Away

1. Absolute increase in unit sales and dollars?

1. (1.80-1.40)x=$600,000
2. 1,500,000-1,000,000

1. 500,000

1. (.40/1.80)x=$600,000
2. $2,700,000-$2,000,000

1. $700,000

1. (.90-.25)x=$1,125,000
2. 1,730,769-1,500,000

1. 230,759

1. (.65/.90)x=1,125,000
2. 1,557,692-$1,500,000

1. $57,692

Problem 4

1. At what price?

1. $.50-.10-.04

1. $.36

1. Contribution per unit

1. $.36-$.18-$.06-$.04

1. $.08

1. Break Even

1. Total Fixed Costs/Contribution Per Unit
2. $340,000/$.08

1. 4,250,000

1. First Year Break Even Share

1. Break Even Units/(Market size*Market percentage served)
2. 4,250,000/(.65*21,000,000)

1. 31%

Problem 5

1. No they should not add the line because it would be a loss of $380.

1. ($175.00-$100.00) x 1982=$148,650
2. ($250.00-$125.00 x 946=$118,250
3. ($300.00-$140.00)x 392=$62,750
4. ($375.00-$225.00) x 300=$45,000
5. $148,650+$118,250+$62,750+$45,000=$374,620
6. $374,620-$355,000=$19,620
7. $19,620-$20,000
8. -$380

Problem 6

1. It would be a great investment to add the DC6900-X model to the line. The net increase would be $363,000,000.
2. (500,000*$1,300)+(250,000*$3,700)=$1,575,000,000
3. (250,000*$2,100)+(250,000+$2,100)=$1,050,000,000
4. (600,000*$1,300)+(400,000*3,700)=2,260,000,000
5. Fixed Costs=$2,000,000
6. $1,575,000,000+$1,050,000,000-$2,260,000,000-$2,000,000
7. $363,000,000

Problem 7

1. No the company should not continue with the development of the product

1. Yes the company should continue with the development of the product.

Problem 8

1. Customer Lifetime Value=$M[1/1+i+r]
2. ($19.95-.50-.50)[1/1+.01-.788]

1. $85.36

1. Customer Retention
2. $18.75/1+.01-r
3. $18.75=$85.36+.8536-$85.36r
4. -$67.36=-$85.36r

1. .7903=r
2. .7903-.788
3. ..23%

Problem 9