R & R Case Trivia, Inc Financial Summary Assumptions Units Sold Trivia, Inc Income Statement Total Exhibit C 580,000 Note: commas should be read as decimals here: Unit Cost Sales 7,250,000 $ 12.50 Variable Breakeven Calculation (Fixed Costs/Contribution per Unit) 11,737 Units COGS $ 1,798,000 $ 3.10 Sales Commisions (20%) $ 1,450,000 $ 2.50 Factor (1%) Ad Allowance (5%) TV Guide Royalty (10%) 75,400 $ 365,400 $ 0.13 Breakeven in sales (Fixed costs/contribution margin) 148,714 0.63 725,000 $ 1.25 Invention Royalty (5%) 365,400 $ 0.63 Total Variable Costs 4,779,200 $ 8.24 Contribution 2,470,800 $ 4.26 Contribution Margin (Contribution/sales) 34.08% Fixed Costs Design & Launch $ 50,000 Bad Debts (Estimated) $ 15,000 Inventory Write Down $ 100,000 Pretax Profit $ 2,305,800 Contrast with Parker Brothers Breakeven.................. Fixed Costs of Design, Development, Advertising and Promotion $ 1,250,000 Contribution Per Unit Trivia Inc or Reiss's Contribution per Unit Factor not Required Advertising Expense in Fixed Cost No Inventor Royalty Contribution per unit for Parker Brothers Breakeven Calculation 221,239 Units (Fixed Costs/Contribution per Unit) $ 4.26 Breakeven in Sales 2,765,487 $ 0.13 (Fixed costs/contribution margin) $ 0.63 $ 0.63 5.65 Contribution Margin 45.20% (Contribution/sales) ......which has a higher contribution, but much higher overhead Contribution per unit: Contribution Margin: Break-even in units: (Selling Price per Unit - Variable Costs per Unit) (Selling Price per Unit - Variable Costs per Unit)/Selling Price per Unit Fixed Costs/Contribution per Unit Break-even in Sales: Fixed Costs/Contribution Margin Note: Contribution Margin is not the same as Gross Margin. In this case, Gross Margin (Gross profit/Sales) is 75.2%. This is a much higher percentage than the Contribution Margin because Gross Margin only deals with COGS, while Contribution Margin deals with all variable costs.