Please answer the following questions: 1. What\'s the total cost of producing an
ID: 1105307 • Letter: P
Question
Please answer the following questions:
1. What's the total cost of producing and selling 100,000 units of the film?
2. How many units will VCI have to sell to break even?
3.If VCI sells 100K units, what will their $ profit be?
4.If VCI is considering using a target return-on-sales strategy. They want to make a 70% return on sales for their films. What price should VCI charge if they use this strategy? Hint: Target Return on Sales = Target Profit/Total Revenue
Video Concepts, Inc. (VCI) markets independently produced films through a variety of video outlets. VCI is faced with deciding whether it should obtain the rights to an unreleased film titled Burnt Orange Forever. VCI estimates the total market for the film to be 100,000 units. Other data available: Cost of distribution rights: $125,000.00 Label design: Package design Advertising: $5,000.00 $10,000.00 $35,000.00 Reproduction of coples: $ $4000.00 per 1.000 units Manufacture of packaging: $500.00 per 1,000 units Royalties VCI expects to sell the film for $20/unit. $500.00 per 1,000 unitsExplanation / Answer
1. What's the total cost of producing and selling 100,000 units of the film?
Total cost = 125000 + 5000 + 10000 + 35000 + (4Q + 0.5Q + 0.5Q)
= 175,000 + 5Q
TC of 100,000 units = 175,000 + 5*100,000 = $675,000
2. How many units will VCI have to sell to break even?
For break even TR = TC
20Q = 175,000 + 5Q
15Q = 175,000
Q* = 11667
At this level, the firm will break even
3.If VCI sells 100K units, what will their $ profit be?
Profit = TR - TC = 20*100,000 - 175,000 - 5*100,000 = $1,325,000
4.If VCI is considering using a target return-on-sales strategy. They want to make a 70% return on sales for their films. What price should VCI charge if they use this strategy?
The revenue will be PQ. It is now requiring a total revenue such that its profits are 70% of its sales revenue
Profit = 0.7PQ
For 100,000 units profits = 70,000P
Profit = 100,000P - 175,000 - 5*100,000
70,000P = 100,000P - 675,000
P = 22.5
Hence it should charge 22.50 per unit.