QUESTION 2

Hollywood Films International (HFI) markets DVD's and videos through a variety of retail outlets. Presently, HFI is faced with a decision as to whether it should obtain the distribution rights to an unreleased film titled "Touch of Tangerine". HFI estimates the total market for the film to be 100,000 units. HFIs suggested retail price for the DVD (i.e., the price at which the retailer would sell the film to consumers) is $20 per unit. However, the company would need to sell the DVD to retailers with a 30% trade discount. Other data available are as follows:

• Cost of distribution rights for film - $150,000
• Cost of label design - $5,000
• Cost of package design - $15,000
• Cost of advertising - $25,000
• Cost of reproduction (per copy) - $4.00
• Cost of manufacture of labels and packaging (per copy) - $1.00
• Cost of royalties (per copy) - $2.00

Calculate the following:

• What is the price at which VCI must sell to the retailers?
• What is VCIs unit contribution?
• What is the break-even point in units?

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 $