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Solution of Strategic Marketing Problems Chapter 2
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Solution of Strategic Marketing Problems Chapter 2
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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


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

Total Fixed Cost

Advertising and Promotion $275,000 Studio Recording’s Overhead $250,000 Total Fixed Cost $525,000 BEV$ = $525,000 / 0.711 =

CD Selling Price = $9.00 Contribution Profit = $6.40

Versus $738,281.25

Contribution Margin = $6.40 / $9.00 = .711 of 71.1%

Difference Due To Rounding of Contribution Margin

Chapter 2 Problem 1 c. Calculate the net profit if 1 million CDs are sold Total Sales (1M CDs x $9) Less: Tot Variable Costs (1M x $2.60) Less: Total Fixed Cost $9,000,000 $2,600,000 $ 525,000 Net Profit $5,875,000

Chapter 2 Problem 1 d. CD unit volume to achieve a $200,000 profit Profit Objective Fixed Cost Contribution per Unit $200,000 $525,000 $6.40…...

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