Instructions:
1) Must show all the calculations for those questions that are involved calculations.
2) Every question must have a clear solutions and provide some examples if necessary.
3) Please ensure that the solutions are matched with the question and marks given respectively.
Assignment 1
Video Concepts, Inc. (VCI) markets video equipment and film through a variety of retail outlets. Presently, VCI is faced with a decision as to whether it should obtain the distribution rights to an unreleased film titled Touch of Orange. If this film is distributed by VCI directly to large retailers, VCI’s investment in the project would be RM150,000. VCI estimates the total market for the film to be 100,000 units. Other data available are as follows:
Cost of distribution rights for film RM 125,000
Label design 5,000
Package design 10,000
Advertising 35,000
Reproduction of copies (per 1,000) 4,000
Manufacture of labels and packaging (per 1,000) 500
Royalties (per 1,000) 500
VCI’s suggested retail price for the film is $20 per unit. The retailer’s margin is 40 percent.
What is VCI’s unit contribution and contribution margin? (9 marks)
What is the break-even point in units? In RM? (3 marks)
What share of the market would the firm have to achieve to earn a 20 percent return on VCI’s investment in the first year? (4 marks)
Is the return on investment in part c. realistic? What factors need to be considered in deciding this? (4 marks)
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