Seminar in Marketing Assignment 2 PDF

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Assignment 2 Questions:

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WebTech Development of Nashville, Tennessee, is considering the possible introduction of a new product proposed by its research and development staff. The firm's marketing director estimates the product can be marketed at a price of $70. Total fixed cost is $278,000, and average variable cost is calculated at $48

a. What is the breakeven point in units for the proposed product? BEP units = Fixed Cost / (Price -UVC) BEP units = 278,000 / ( 70 - 48 ) = 278,000 / 22 = 12,636 b. The firm's CEO has suggested a target profit return of $214,000 for the proposed product. How many units must be sold to both break even and achieve this target return? Target Return = Fixed Cost = Target Profit / Contribution Target Return = (278,000 + 214,000) / (22) = 492,000 / 22 Target Return = 22,363.63

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Video Concepts, Inc. (VCI) markets video equipment and film through a variety of retail outlets. Presently VCI is faced with a decision as to whether it should obtain the distribution rights to an unreleased film titled ‘Touch of Orange’. If this film is distributed by VCI directly to large retailers, VCI’s investment in the project would be $150,000. VCI estimates the total market for the film to be 100,000 units. Other data available are as follows:

Costs of distribution rights for the film $125,000 Label design $5,000 Package design $10,000 Advertising $35,000 Reproduction of copies (per 1000) $4,000 Manufacture of labels and packaging (per 1000) $500 Royalties (per 1000) $500 VCI’s suggested retail price for the film is $20 per unit. The retailer’s margin is 40 percent.

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What is VCI’s unit contribution and contribution margin?: Unit Contribution = 20 - (4 - 8 - 0.5 - 0.5) = 20 - 13 = $7 Contribution Margin = Contribution Per Unit/ Selling Price Per Unit = 7/20 = 0.35 = 35%

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What is the break-even point in units? BEP (In Units) = (35,000 + 10,000 + 5,000 + 125,000) / 7 = 175,000 / 7 = 25,000 Units

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What is the break-even point in dollars? BEP (In $) = 175,000 / 0.35 = $500,000

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What share of the market would the film have to achieve to earn a 20 percent return on VCI’s investment the first year? Targeted Profit = 150,000 x 20% = $30,000 Expected Sales = (175,000 + 30,000) / 7 = 205,000 / 7 = 29,285.71 = 29,286 Units Share Of Market = 29,286 /100,000 x 100 = 0.29286 x 100 = 29.286 = 29.3%

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Net-4-You is an Internet Service provider that charges its 1 million customers $19.95 per month for its service. The company’s variable costs are $0.50 per customer per month. In addition, the company spends $0.50 per month per customer, or $ 6 million annually, on a customer loyalty program designed to retain customers. As a result, the company’s monthly customer retention rate was 78.8 percent. Net-4-You has a monthly discount rate of 1 percent. ○ What is the customer lifetime value? Retention rate = 78.8% Discount rate = 1%

(19.95 -.50 -.50) [ 1/ 1 +.01 -.788] 18.95 x 4.505 = 85.36 per month CLV = $85.36 ○

Suppose the company wanted to increase its customer’s monthly retention rate and decided to spend an additional $0.20 per month per customer to upgrade its loyalty program benefits. By how much must Net-4-You increase its monthly customer retention rate to avoid the customer lifetime value resulting from a lower customer margin?

85.36 / 18.75 = 4.55 4.55 = [ 1/ 1 + .01 - r ] R = 1.01 - 1/ 4.55 = 0.79 .79 -.788 = .002 CRR = 20%

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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 Songwriter’s royalties Recording artists’ royalties Advertising and promotion Studio Recordings, Inc.’s overhead Selling price to CD distributor Calculate the following: ●

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$1.25/CD $0.35/CD $1.00/CD $275,000 $250,000 $9.00

Contribution per CD unit ○ P-UVC P=$9.00 UVC=1.25+.35+1=2.6 ○ 9-2.6=6.4 Break-even volume in CD units and volume ○ BEP(units)= FC/P-UVC FC=275,000+250,000=525,000 ○ =525,000/6.4= 82,031.25 ○ BEP(volume)= 82,031.25(9)= 738,281.25

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Net profit if 1 million CDs are sold ○ TC-FC ○ 1,000,000(6.4)-525,000= 5,875,000 Necessary CD unit volume to achieve a $200,000 profit ○ Profit= (P*Q)-(FC+(UVC*Q)) ○ 200,000=(9*Q)-(525,000+(2.6*Q)) ○ 200,000=9Q-525,000-2.6Q ○ 725,000=6.4Q ○ Q=113,281...