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2. Video Concepts, Inc. (VCD) markets video equipment and film through a vari- ety of retail outlets. Presently, VCI is faced with a decision as
2. Video Concepts, Inc. (VCD) markets video equipment and film through a vari- ety 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 invest ment in the project would be $150,000. VCI estimates the total market for the film to be 100,000 units. Other data available are as follows: Cost of distribution rights for film $125,000 Label design 5,000 Package design 10,000 Advertising 35,000 Reproduction of copies (per 1,000) 4,000 Manufacture of labels and packaging (per 1,000) 500 Royalties (per 1,000) VCI's suggested retail price for the film is $20 per unit. The retailer's margin is 500 40 percent. a. What is VCI's unit contribution and contribution margin? b. What is the break-even point in units? In dollars? What share of the market would the film have to achieve to earn a 20 percent return on VCI's investment the first year? 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 to earn a 20 percent return on VCI's investment the first year
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