Assignment:
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 $150,000. VCI estimates the total market for the film to be 100,000 units. Other data available are as follows:
Costs of distribution rights for the film $125,000
Label design $5,000
Package design $10,000
Advertising $35,000
Reproduction of copies (per 1000) $4,000
Manufacture of labels and packaging (per 1000) $500
Royalties (per 1000) $500
VCI's suggested retail price for the film is $20 per unit. The retailer's margin is 40 percent.
1. What is VCI's unit contribution and contribution margin?
2. What is the break-even point in units?
3. What is the break-even point in dollars?
4. What share of the market would the film have to achieve to earn a 20 percent return on VCI's investment the first year?