Financial Marketing ProblemsPrepare your answers to these questions in Word and show interim calculations. Do NOT use a spreadsheet to solve these problems.1. The See & HearIt! Company produces lectures and presentations from some of the country’s top college professors on digital video disk (DVD). The following cost information pertains to the disks:Disk and packaging (materials and labor) $1.25/DVDInstructors’ Royalties (paid per disk) $1.35/DVDAdvertising and Promotion $275,000(Budgeted for the year)Company Overhead $250,000Selling price of each disk $9.00Calculate the following: (a) Contribution per unit; (b) Breakeven volume in units and dollars; (c) Construct an income statement to show the Net Profit if 1 million DVDs are sold at the set selling price of $9.00; (d) Determine the necessary DVD unit volume to achieve a $200,000 profit [Hint: See primer explanation—modify the fixed costs to include the desired profit amount.]2. An independent film distributor is getting ready to release a documentary video entitled, The Unedited Truth. The distributor will sell the video through specialty retailers. The distributor estimates the total market for the documentary video to be 100,000 units. Other data are as follows:Label & Titles Design Fee (one time charge) $18,000Advertising 42,000Reproduction costs (per 1000 copies) 4,000Packaging costs (per 1000 copies) 500Production royalties (per 1000 copies) 5000The distributor’s suggested retail price (MSRP) for the video is $30 per unit. The retailer’s required margin is 40 percent.a. What is the distributor’s unit contribution and percentage contribution margin? [Hint: To solve this problem, you must first calculate the distributor’s unit selling price to the retailer. Work backwards from the MSRP. See the primer for explanation.]b. What is the distributor’s breakeven point in units? In dollars?c. The distributor is hoping to go beyond just breakeven. What share of the total estimated market would the documentary have to capture to earn a 20 percent return on investment, wherein the distributor made an investment of $125,000 to obtain the distribution rights to the product?3. This problem is about a kiwi flavored breakfast drink called Kiwig. Kiwig is packaged in an 8-oz. juice box and will soon be introduced to the breakfast drink market in the U.S., which is estimated to be 50 million 8-oz. boxes nationally. One major management concern is the lack of funds available for marketing. Consequently, management has decided to use a simple newspaper insert coupon for advertising rather than costly television spots to promote Kiwig in its first year. Kiwig will be distributed by wholesalers to retailers located only in major metropolitan areas that account for 65 percent of U.S. breakfast drink volume. It will not be available in smaller areas. The newspaper advertising inserts will feature a $0.20-off-coupon on a box of Kiwig. Here is other important information:Wholesalers will earn a trade margin of 10% and retailers will earn a trade margin of 20%Budgeted cost of newspaper advertising (not including the coupons redeemed): $350,000Fixed overhead costs: $200,000 per year.Management’s suggested retail price (MSRP) for an 8-oz. juice box: $1.29Unit variable costs for the product: $0.18 for materials and $0.07 for labor.Past experience indicates that for every five juice boxes sold during introduction, one coupon will be returned making for a 20 percent coupon redemption rate (1/5 = 20%). As a result, the manufacturer will charge $0.04 to each juice box to cover the expected coupon redemption cost (.20 coupon *1/5 redemption rate = (.20 * .20) = $0.04. a. At what unit price will Kiwig’s manufacturer sell Kiwig to wholesalers? [Hint: See primer for explanation of how to calculate selling prices at different levels of the distribution channel by using trade margins. You must work backward from the MSRP, taking out both the retailer’s and the wholesaler’s margin.]b. What is the manufacturer’s contribution per unit for Kiwig?c. What is the manufacturer’s breakeven unit volume of Kiwig in the first year?d. What is the first-year breakeven share of the “served” market? That is, what share of the served market must Kiwig capture to breakeven in its first year? [Hint: See explanation of market size and served market in the primer.]4. Team-Building Systems, Inc. (TBS) trains corporate work groups how to function more effectively as teams. As such, TBS is a B2B marketer selling corporate training services. TBS is planning a number of important new marketing initiatives for the next year such that sales of $26 million are forecast for next year. Here is additional information on the company’s expected or forecasted costs:Sales representatives receive a 15 percent commission on sales of all training contracts.Salaries and benefits of the sales force (as well as all other incidental non-commission selling costs) is estimated at $3.1 million.TBS’ advertising and promotion budget contains three elements: trade magazine advertising, sales promotion materials including brochures, training manuals, and trade show displays and cooperative (co-op) advertising with corporate office furniture & equipment dealers.All advertising & sales promotion materials will be developed by the company’s advertising agency and are budgeted at $325,000 with media placement costs included in this amount.Cooperative advertising production costs are budgeted at $100,000 with the company’s cooperative advertising policy further allocating 5 percent of sales to office equipment dealers in exchange for the dealers’ promoting TBS’ training services.Direct costs (COGS) to deliver the training services were estimated at 50 percent of sales.Indirect overheads (for example, depreciation, utilities) are estimated at $500,000.Administrative overheads (clerical support, telephone service, etc.) are budgeted at $325,000.An on-site “delivery” charge for the training is budgeted at 8 percent of sales.Using the information provided:a. Prepare a pro forma income statement for TBS at the forecasted sales of $26 million.b. Prepare a pro forma income statement for TBS given an annual forecasted sales of $21 million.
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