Question
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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