Solution for Finalcial Aspects of Marketing Management by Kotler & Keller

Answer 1

A. $6.40

B. Break even in units 82,031.25 units

  Break even in dollars $738,281.25

C. $5,875,000

D. 113,281.25 units

Explanation for Question 1A-

Selling Price is $9

Deduct Variable costs:

• CD Package and disk $1.25/unit
• Songwriter’s royalties $.35/unit
• Recording artist’s royalties $1.00/unit

Total Variable cost= 2.60

Contribution per CD unit= Selling Price – Unit Variable cost.

Therefore, 9-2.60= $6.40

Explanation for Question 1B-

Fixed Cost:

• Advertisement and promotion $275,000
• Studio recording overhead $250,000

Contribution margin=Unit selling price- unit variable cost/ unit selling price

= ($9-$2.60)/$9= .71111

Contribution per CD unit = $6.40 (From A)

Unit Break-even volume= Total dollar fixed cost/ unit selling price- unit variable cost.

=$525,000/6.40= 82031.25 units

Break even in Dollars= Total fixed cost/contribution margin

= 82,031.25*$9= $738,281.25

Explanation for Question 1C-

Net Profit= Total contribution-Total fixed cost

Total Sales (1,000,000units*9$) = $9000000

Less: Total Variable cost (1,000,000units*$2.60) = 2,600,000

Answer 2

A. Unit contribution= $7

    Contribution margin= 58.3%

B. Breakeven point in units= 25,000units

     Breakeven point in Dollars= $300,172

C. Market share= 29.3%

Less: Total fixed cost 525,000

Net profit= $5,875,000

Explanation for Question 1D-

Targeted profit= $200,000

Fixed cost= $525,000

Contribution per Unit= $6.40

= $525,000 total dollar fixed cost + $200,000 dollar targeted profit/ contribution per unit $6.40

=113,281.25 units.

Explanation for Question 2A

Selling price would be 20 (Suggested retail price)-8 (Retailer margin) =12$

Variable cost per unit:

• Copy reproduction($4000/1000)= $4
• Royalties ($500/1000)= .50
• Label and package ($50/1000)= .50

Total variable cost per unit= $5

 Unit contribution= $12-$5= $7

Contribution margin= $7/$12= .583 or 58.3%