Video Concepts, Inc. (VCI) markets video and film equipment through various retail outlets. VCI has just acquired the DVD distribution rights to a new film. VCI estimates the total market size for a film of this type to be 100,000 units. Other data available are:
Cost of distribution rights for film $125,000 Label design $ 5,000 Package design $ 10,000 Advertising $ 35,000 Duplication of DVDs (per 1000 units) $ 4,000 Label and package manufacturing (per 1000 units) $ 500 Royalties (per 1000 units) $ 500 VCI’s selling price to retailers (per unit) $ 12
a. What is VCI’s unit contribution?
b. What is VCI’s contribution margin?
c. What is the breakeven volume in units?
d. What is the breakeven volume in dollars?
e. What market share would VCI need to have in order to break even? That is, what share of the market does the breakeven volume represent?