Management Accounting Essay

888 WordsNov 10, 20144 Pages
COURSE: MANAGERIAL ACCOUNTING (Codes 6051 BIEM – 5361 CEU) A.Y. 2008-2009 First mid-term written test 4th November 2008 ID number __________ Surname _______________ First Name ________________ Signature (student) ______________________________________________________________ Time allowed 60 minutes. It is not allowed to use other papers than this booklet. This exam is in closed-book format. Use the pen (not the pencil) to provide the answers. Use the back of the paper sheets for scratch. Do not write in this section. Grade _________________________ Signature ________________________________________ Page 1/6 Question 1 (8 points) MP3-Download (MP3-D) is a new web-company operating in the “Music On-line” business. MP3-D buys each single music-file from the Majors for an average cost of about $80 and offer to customers music downloads for $2 per file. The general manager is evaluating a change in the company’s strategy. This new strategy allows MP3-D to purchase music-files for an average cost of $30 per file and pay the Majors 50% of any downloading fee, received for the music-file. Assuming that operating costs are all fixed, answer the following questions: Required: 1. Under the traditional strategy, how many downloads are required to reach break even on each single music-file? 2. Under the new strategy, how many downloads are required to reach break even on each single music-file? 3. Suppose customers download 60 times a music-file like “Get Together” (Madonna’s song). What profit would MP3-D make on downloads of this song under the traditional strategy? And under the new strategy? 4. Under the new strategy calculate the break-even point in dollar of each music-file, using the contribution margin ratio. 5. Under the new strategy calculate the number of downloads are required to earn an after tax profit of $40 on each single music-file.

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