QUESTION 1

RCA Records produced the latest compact disc by the Buffett Brothers, titled "If the Phone Doesn't Ring, It's Me." The following cost information pertains to the new CD:

• CD package and disc - $0.75/CD
• Direct labor - $1,00
• Artists and writers' royalties - $1.50/CD
• Advertising and promotion - $275,000
• Annual rent for studio - $60,000
• Studio Recordings, Inc., overhead - $200,000
• Selling price to CD distributor - $12.00

Calculate the following:

• Contribution per CD unit
• Break-even volume in CD units
• Net profit if 1 million CDs are sold
• Necessary CD unit volume to achieve a $500,000 profit

Please show detailed calculations.

Pricing Formulae 1. Total Cost (TC) = Total Fixed Costs (TFC) + Total Variable Costs (TVC) 2. 3. Profit = Total Revenue (TR) - Total Cost (TC). Contribution Margin per Unit (CMU) = Selling Price per Unit (SPU) - Total Variable Costs per Unit (TVC). SPU-TVC 4. Contribution Margin % (CM %) = SPU = CMU [Per Unit Basis) SPU TFC 5. Break-Even Units (BEU) = CMU 6. Break-Even Dollars (BE$) TFC "CMU% 7. Break-Even (Sales Revenue) Dollars (BER$) = BEU SPU 8. Break-Even (Contribution) Dollars (BEC$) = BEU x CMU 9. Number of units needed to achieve an = TFC + Profit Goal operating profit goal CMU 10. Total Sales Revenue (TR) = Selling Price (SP) x Units Sold (Q). 11. Total Contribution = Contribution per unit (CMU) x Units Sold (Q) 12. Trade Price = Retail Sales Price (MSRP) x (1 Trade Discount %] 13. Break-Event market share = BEU_or Market Size BE$ Market Size $