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10S-2. Executives of Studio Recordings Inc. produced the latest compact disc by the Starshine Sisters Band, titled Sunshine/Moonshine. The following cost information In Table 1

10S-2. Executives of Studio Recordings Inc. produced the latest compact disc by the Starshine Sisters Band, titled Sunshine/Moonshine. The following cost information In Table 1 pertains to the CD:

Table 1

CD Information

Cost

CD package

$1.25/CD

Songwriters royalties

$0.35/CD

Recording artists royalties

$1.00/CD

Advertising and promotion

$275,000

Studio Recording Inc.s overhead

$250,000

Selling price to the CD distributor

$9.00

1. Calculate the following figures and complete the Table 2 below for Question 1:

Contribution per CD unit

Break-even volume in CD units and dollars

Net profit if one million CDs are sold

Necessary CD unit volume to achieve a $200,000 profit

2. Recalculate the four figures for a situation in which the selling price to the CD distributor is dropped to $8.00 and complete Table 2 for Question 2.

3. Recalculate the four figures for a situation in which Studio Recording Inc.s overhead is reduced to $175,000 and complete Table 2 for Question 3.

Table 2

Question 1

Question 2

Question 3

Contribution per CD unit

$6.4

$5.4

$6.4

Break-even volume in CD units and dollars

82,031 units

$739,436

97,223 units

$777,784

70,313 units

$632,817

Net profit if one million CDs are sold

$5,875,000

$4,875,000

$5,950,000

Necessary CD unit volume to achieve a $200,000 profit

113,282 units

134,260 units

101,563 units

4. If you were tasked to produce $300,000 minimum in profit, what would your pricing recommendation be? Consider the ethical considerations of your decision. Support your recommendation in one to two paragraphs and complete Table 3 with your new recommendations.

Supporting paragraph(s):

Table 3

Type of Cost

Actual Cost

New Recommendation

CD package

$1.25 per CD

To be completed by student

Songwriters royalties

$0.35 per CD

To be completed by student

Recording artists royalties

$1.00 per CD

To be completed by student

Advertising and promotion

$275,000

To be completed by student

Studio Recording Inc.s overhead

$250,000

To be completed by student

Selling price to the CD distributor

$9.00

To be completed by student

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