Contribution Margin

1. a.) Contribution per CD unit:

Unit Selling - Variable Costs

$9.00 - 1.25 - .35 - 1.00 = $6.40

$6.40

b.) Break-even volume in CD units and dollars:

($275,000 + 250,000) / 6.40 = 82,032 units

82,032 * $9.00 = $738,288 to break even

c.) Net profit if 1 million CD's sold:

1,000,000 * 6.40 = 6,400,000

6,400,000 - 525,000 = $5,875,000

d.) Necessary CD unit volume to achieve $200,000 profit

6.40 (x) - $525,000 = 200,000

x = 113,282 units needed

2. a.) Unit contribution and contribution margin:

$20 - 4.00 - .50 - .50 = $15 unit contribution

$15 / 20 = 75 % contribution margin

b.) Break-even point in units? In dollars?

$15 (x) - 125,000 - 5,000 - 10,000 - 35,000 = 0

11,667 units are needed

11,667 * $20 = $233,340 dollars needed

c.) What share of the market is needed to earn a 20% return on investment?

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3.

4. a.) Selling to wholesalers at 10% off the selling price

10% * .50 = .05

so it will be sold to wholesalers at $.45 per can

b.) Contribution per unit

$.50 - .18 - .06 = $.26 per unit

c.) Break-even unit volume per unit

$.26 (x) - 300,000 - 250,000 - 90,000 = 0 ????

d.) First year break-even share of market

5. Should VCI add the new Model LX4 to its line of VCR's?

The demand would lower for the other models to as follows:

Model LX1: 1,800

Model LX2: 700

Model LX3: 200

Total Revenue without new line for year: $355,000

Total Revenue with new Model LX4 line: $299,500 excluding fixed cost of $20,000 to add new line.

For the upcoming year I would not add the new model. The cost involved both variable and fixed would lower your revenue. The new model contribution per unit is lower than Model LX3 and would take away from that models demand and thus reduce revenues. I think this product needs