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. VCI estimates the total market for the film to be 100,000 units. VCI’s suggested retail price for the film (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 film to retailers at a price that ensured the retailers would be able to make a profit of 40%.
Other data available are as follows:
Cost of distribution rights for film $125,000
Cost of label design $5,000
Cost of package design $10,000
Cost of advertising $35,000
Cost of reproduction (per copy) $4.00
Cost of manufacture of labels and packaging (per copy) $.50
Cost of royalties (per copy) $.50
a. What is the price at which VCI must sell to the retailers?
b. What is VCI’s unit contribution?
c. What is the break-even point in units?