Please breakdown in detail to show my work QUESTION 2
Hollywood Films International (HFI) markets DVD's and videos
through a variety of retail outlets. Presently, HFI is faced with a
decision as to whether it should obtain the distribution rights to
an unreleased film titled "Touch of Tangerine". HFI estimates the
total market for the film to be 100,000 units. HFIs suggested
retail price for the DVD (i.e., the price at which the retailer
would sell the film to consumers) is $20 per unit. However, the
company would need to sell the DVD to retailers with a 30% trade
discount.
Other data available are as follows:
Answer the following questions:
Make sure you are responding to each part of every question. You MUST show your detailed calculations for each question. Partial credit will be given for completing the right steps even if your final answer is incorrect.
Solution a) Price per unit of DVD = $20
Trade discount offered = 30%
Thus, price after the trade discount = 20*(1-30%)
= 20*0.7 = $14
Solution b) Variable Cost per unit is given as:
Cost of reproduction (per copy) - $4.00
Cost of manufacture of labels and packaging (per copy) - $1.00
Cost of royalties (per copy) - $2.00
Total variable cost per unit = 4 + 1 + 2 = $7
Contribution per unit = Price per unit - Variable cost per unit
= 14 - 7
= $7
Solution c) Break-even number of units = Fixed costs/Contribution per unit
Fixed costs include:
Total fixed costs = 150,000 + 5,000 + 15,000 + 25,000
= 195,000
Break-even number of units = 195,000/7 = 27857.14 units
= 27,858 units
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