Question
Video Concepts, Inc. (VCI) markets video equipment and film through a variety of retail outlets. Presently, VCI is faced with a decision as to whether
Video Concepts, Inc. (VCI) markets video equipment and film through a variety 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, VCIs investment in the project would be $150,000 and the total market for the film is estimated at 100,000 units. Other data are as follows: Cost of distribution rights for film $125,000 Label design 5,000 Package design 10,000, 4,000 Manufacture of labels and packaging (per 1,000) 500 Royalties (per 1,000) 500 VCIs suggested retail price for the film is $20 per unit. The retailers margin is 40 percent. a) What is VCIs 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 in the first year to earn a 20 percent return on BCIs investment?
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