Financial Exercise

1. Calculate the contribution per CD unit

Selling price to CD distributor $9.00

Less: Variable cost

CD Package and disk (direct material/labor) $1.25/unit

Songwriter's royalties $0.35/unit

Recording artists' royalties $1.00/unit

Total variable cost 2.60

Contribution per CD unit $6.40

2. Calculate the break-even volume in CD units and dollars

Total Fixed Cost: Advertising and promotion $275,000

Studio Recordings, Inc. overhead 250,000

Total $525,000

Contribution per CD unit (from #1 above) $6.40

Contribution margin ($9.00-$2.60)/$9.00=.711 or 71.1%

$525,000

Break-even volume in units = $6.40 = 82,031.25 units

$525,000

Break-even volume in dollars = .711 ice to CD distributor $9.00

Less: Variable cost

CD Package and disk (direct material/labor) $1.25/unit

Songwriter’s royalties $0.35/unit

Recording artists’ royalties $1.00/unit

Total variable cost 2.60

Contribution per CD unit $6.40

2. Calculate the break-even volume in CD units and dollars

Total Fixed Cost: Advertising and promotion $275,000

Studio Recordings, Inc. overhead 250,000

Total $525,000

Contribution per CD unit (from #1 above) $6.40

Contribution margin ($9.00-$2.60)/$9.00=.711 or 71.1%

$525,000

Break-even volume in units = $6.40 = 82,031.25 units

$525,000

Break-even volume in dollars = .711 = $738,396.62

...