Finance Analysis Essays

1083 Words Apr 22nd, 2012 5 Pages
MARKETING MANAGEMENT
FINANCIAL ANALYSIS QUESTIONS
Please prepare each question.
Members of the class will be called at random to present their answers.

1. Executives of Studio Recordings, Inc., produced the latest compact disc by the Starshine Sisters Band, titled Sunshine/Moonshine. The following cost information pertains to the new CD:
CD package and disc (direct material and labor) $1.25/CD
Songwriters’ royalties’ $0.35/CD
Recordings artists’ royalties’ $1.00/CD
Advertising and promotion $275,000
Studio Recordings, Inc., overhead $250,000
Selling price to CD distributor $9.00

Calculate the following: a. Contribution per CD unit $9.00 - $2.60 = $6.40 b. Break-even volume $525,000
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For Red-Away? b. How many additional sales dollars must be produced to cover each $1.00 of incremental advertising for Rash-Away? For Red-Away? c. What absolute increase in unit sales and dollar sales will be necessary to maintain the level of total contribution dollars if the price of each product is reduced by 10 percent?

a. 150,000 / .60 = 250,000 units or $500,000 150,000 / .75 = 200,000 units or $200,000 b. 500,000 / 150,000 = 3.33 200,000 / 150,000 = 1.33 c. (.10x2.00=0.20) 1.80 new unit price; new unit contribution is $.40; 600,000/.40 = 1,500,000; 1.8 x 1,500,000 = $2,700,000; 2,700,000-2,000,000 = 700,000
(.10x1.00=0.10) 0.90 new unit price; new unit contribution is $.65; 1,125,000/.65 = 1,730,769.23; .90 x 1,730,769.23 = $1,557,692.31-1,500,000 = 57,692.3077

3. Video Concepts, Inc. (VCI) manufactures a line of DVRs that are distributed to large retailers. The line consists of three models. The following data are available regarding the models: Model | Selling Price per Unit | Variable Cost per Unit | Demand/Year(units) | Model LX1 | $175 | $100 | 2,000 | Model LX2 | 250 | 125 | 1,000 | Model LX3 | 300 | 140 | 500 |

VCI is considering the addition of a fourth model to its line. This model would be sold to retailers for $375. The variable cost of this unit is $225. The demand for the new Model LX4 is estimated to be 300 units per year. These unit sales of the new model are

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