Vangourp Essay

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Basic Quantitative Skills in Marketing: Applications of Break-Even Analysis 1. Blan Co. sells wine and has a fixed cost of $102,400. The company sells its wine for $12 a bottle, and its variable costs are $2.14 per unit. The company's winemaking facility emits a considerable amount of water pollution and is ordered to install a filter, increasing fixed costs by $30,000. If the profit objective of $200,000 remains the same, and the sales price and variable costs remain unchanged, how many more bottles of wine must it sell? 2. Executives of Studio Recordings, Inc., produced the latest compact disc by the Starshine Sisters Band, titled Sunshine. The following cost information pertains to the new CD: CD package and disc (direct material and labor) $1.5/CD; Songwriters’ royalties $0.5/CD; Recording artists’ royalties $1.00/CD; Advertising and promotion $280,000; Studio recordings, Inc., overhead $250,000; Selling price to CD distributor $9.00. Calculate the following: a) Break-even volume in CD units and dollars; b) Net profit if 1 million CDs are sold; c) Necessary CD unit volume to achieve a $500,000 profit. You are required to submit your typewritten answer to the assigned questions in the Isidore Assignments tool. Due: 5pm Friday Sept. 20, 2013 Zhibo Wang 1. Answer: Before installing a filter, bottles of wine sold=( 102,400+200,000)/(12-2.14)=30670 After installing a filter, the fixed cost increases 30,000. Bottles of wine sold=(102,400+200,000+30,000)/(12-2.14)=33712. So additional bottles of wine must be sold =30,000/(12-2.14)=3043 2. Answer: a) Break-even volume(in CD unit and dollors)= Total Fixed cost/ Fixed cost contribution per unit= (280,000+250,000)/(9-0.5-1.5-1.00)=88333 Break even dollar amount=88333*(1+1.5+0.5)+280,000+250,000=794999 b) If 1,000,000 CDs are sold, the net

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