# Solution of Strategic Marketing Problems Chapter 2

1445 words 6 pages
MKT 2375

Chapter 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 =
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

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