## Answers

a) | Calculate the Focus unit contribution and contribution margin : | ||

variable cost : | |||

Cost of distribution rights for film | $ 125,000 | ||

Label design | $ 5,000 | ||

Package Design | $ 10,000 | ||

Reproduction of copies { (100,000 units / 1000 unit)* $ 4,000} | $ 400,000 | ||

Manufacture of labels and packaging {(100,000 units /1000 units )*$ 500 } | $ 50,000 | ||

Royalties { (100,000 units /1000 units )* $ 500 } | $ 50,000 | ||

Total variable cost | $ 640,000 | ||

Variable cost per unit = Total variable cost /Number of units | |||

Variable cost per unit = $ 640,000 / 100,000 units | |||

Variable cost per unit = $ 6.40 per unit | |||

Focus selling price per unit = $ 20 - ( $ 20 * 40% ) = $ 12 | |||

Contribution per unit = selling price per unit - variable cost per unit | |||

Contribution per unit = $ 12 - $ 6.40 | |||

Contribution per unit = $ 5.60 per unit | |||

Contribution margin = (Selling price per unit - variable cost per unit )/ Selling price per unit | |||

Contribution margin = ($ 12 - $ 6.40 ) / $ 12 | |||

Contribution margin = 46.67 ( rounded to 2 decimals) | |||

b) | Calculate the Break even point in units and in dollars : | ||

Break even point ( in units ) = Fixed cost / contribution margin per unit | |||

Break even point ( in units ) = $ 150,000 / $ 5.60 per unit | |||

Break even point ( in units ) = 26,785.71 units ( rounded to 2 decimal ) | |||

Break even point ( in dollars ) = Break even point ( in units ) * selling price per unit | |||

Break even point ( in dollars ) = 26,785.71 units * $ 12 per unit | |||

Break even point ( in dollars ) = $ 321,428.52 ( rounded to 2 decimal ) | |||

c) | share of market would the film have to achieve to earn 20 % return on focus 's investment the first year : | ||

Focus's Return on investment = 20 % | |||

Return on investment = $ 150,000 * 20 % = $ 30,000 | |||

Retailer margin is 40 percent | |||

Margin = (100,000 units * $ 20 per unit * 40 % ) = $ 800,000 | |||

Return on investment = margin * Turnover | |||

so, Turnover = Return on investment / Margin | |||

Turnover = $ 30,000 / $ 800,000 | |||

Turnover = $ 0.0375 per unit | |||

Turnover for 100,000 units = ($ 0.0375 per unit * 100,000 units) = 3,750 units | |||

Share of marketing in the first year = (3,750 units / 100,000 units)* 100 = 3.75 % | |||

So, share of marketing in the first year = 3.75 % |

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