Solution of Strategic Marketing Problems Chapter 2
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MKT 2375Chapter 2 Problem 1 a. CD Contribution Profit
Selling Price to CD Distributor
Less: Variable Cost
$9.00 $1.25 $0.35 $1.00 $2.60
CD Package and disk Songwriter’s royalties Recording artists’ royalties Total Variable Cost
Contribution per CD unit
$6.40
Chapter 2 Problem 1 b. Break-Even Analysis – Units and Dollars
Total Fixed Cost
Advertising and Promotion $275,000 Studio Recording’s Overhead $250,000 Total Fixed Cost $525,000
BEVU = $525,000 / $6.40 = 82,031.25 units
BEV $ = 82,031.25 units x $9.00 = $738,281.25
Chapter 2 Problem 1 CONTRIBUTION MARGIN
Total Fixed Cost
Advertising and Promotion $275,000 Studio Recording’s Overhead $250,000 Total Fixed Cost $525,000
BEV$ = $525,000 / 0.711 = …show more content…
Present Product Line Contribution:
Product
Selling Price
Unit Variable Cost
Contribution Profit
Units Sold
Total Contribution
LX1 LX2 LX3
$175.00 $250.00 $300.00
$100.00 $125.00 $140.00
$ 75.00 $125.00 $160.00 Total
2,000 1,000 500 3,500
$150,000 125,000 80,000 $355,000
CHAPTER 2 Problem 5 LX4 Cannibalization Effect Total Product Sales LX4 Cannibalized Sales 60% LX1 LX2 LX3 10% 30% 60% 120 Units 300 Units 180 Units 18 Units 54 Units 108 Units LX1 LX2 LX3 $ 75 $125 $160 1982 946 392 $148,650 118,250 62,720 $329,620 $ 45,000 $374,620
Contribution After Cannibalization LX4 $150 300
Incremental Sales
Total Product Line Contribution
CHAPTER 2 Problem 5 The Decision
The addition of the LX4 model does increase product line contribution by $19,620 (Original Contribution = $355,000 vs. New Contribution = $374,620). However, VCI will incur an incremental fixed cost of $20,000 to add the LX4 model to the line. Therefore, VCI incurs a loss of $380: $19,620 - $20,000 = -$380 The decision? Do not introduce LX4 because incremental contribution does not cover incremental fixed cost.
CHAPTER 2 Problem 6
Should the DC6900-X Model Be Added to the Line?
Product
Unit Selling Price
Unit Variable Cost
Unit Contribution Profit
DC6900-Omega DC6900-Alpha DC6900-X
$5,900 $2,500 $3,900
$2,200 $1,200