Question

QUESTION 1

Monster Inc. markets personal computer games through a variety of retail outlets. Presently, Monster is faced with a decision as to whether it should obtain the distribution rights to a new technology for personal computer gamers The new game consists of the Daytona 500 game CD, driver seat pad, and control unit with cable (one of each is required per computer to play the game).

The retailer’s margin will be 30%. Other data available are as follows:

            Hot Stuff Daytona 500 Software License (per year).......................................$350,000

            Annual interest payments................................................................................ $100,000

Annual Overhead (per year) .............................................................................. $50,000

            Annual Advertising and promotion...........................................................................$60

            Royalties for “Daytona 500” Game (per CD)............................................................ $10

            Control Unit and Cable (per unit)................................................................................ $5

            Material & Labor for Seat Pad (per pad).......................... First 3 digits of your Banner ID

The suggested retail price is the last three numbers in your Banner ID number. If value of last three numbers is less than 100, multiple the last three digits of your ID by 10. The Material and Labor cost are the first 3 numbers in your Banner ID (ignoring the “@” symbol).

For example, your Banner ID # is:

@01565426, then the retail price is last 3 digits or $426 and Material cost is first 3 digits or $15.

@01750043, then last 3 digits are 043, which is less than 100, so multiple by 10 to get retail price. Retail price is $430 and Material cost is first 3 digits or $17

Answer the following (please show work):

• What is your Banner ID?
• What is the price at which Monster must sell to the retailers?
• What is VCI’s unit contribution?
• What is the break-even point in units?

MY BANNER ID: @01592154

Answer 1

1) Banner ID: @01592154

2) Price ==> $154

3) VCI's unit contribution

==> Sale price-Retailer's margin-Royalty per CD-Control unit & cable cost-Material & labor cost

==> 154 - (30% x 154) - 10 - 5 - 15 = $77.8

4)

Fixed costs==> Software license cost+Annual interest payment+cost of package design+Annual advertising and promotion

==> 350,000+100,000+50,000+60 ==> 500,060

Break even point in units

==> Fixed cost / unit contribution ==> 500,060/77.8 ==> 6427.50 units

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