QUESTION 1. Executives of Connecticut Recording Artists, Inc., produced the latest compact disc by the Bobcat Band, titled "What the Q?". The following cost information pertains to the new CD.
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CD package and disc (direct material and labor)
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$1.25/CD
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Songwriters' royalties
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$0.35/CD
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Recording artists' royalties
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$1.00/CD
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Advertising and promotion
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$275,000
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Connecticut Recording Artists, Inc., overhead
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$250,000
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Selling price to CD distributor
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$9.00
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What is the break-even in dollars?
A. $738,281.25
B. $6.40
C. $630,934
D. $82,031.25
QUESTION 2
What would the net profit be if 1 million CDs were sold?
A. $238,281
B. $2,750,000
C. $3,775,000
D. $5,875,000
QUESTION 3
Use the following information for the Questions Whitney Laundry Products.
Whitney Laundry Products has just developed a non-chlorine based laundry additive called EverBright that helps brighten white clothes and prevents colored clothes from fading in the wash. It reduces the amount of laundry soap that needs to be used in each load of laundry by 50%. EverBright breaks down the chemicals in the laundry detergent and helps to remove any residual dirt or chemicals during the rinse cycle. So, Everbright cannot be added to the washing machine until the end of the wash cycle.
Whitney Laundry Products has developed an easy-to-use dispensing device to empty EverBright into the washing machine at the right time. The device is about the size of an apple. Consumers fill the dispenser with EverBright and drop it in the washing machine with the load of laundry. The dispenser adds EverBright to the water as the rinse cycle starts and can then be refilled and used on next load of laundry. The device is very durable and can be reused 1,000s of times before it needs to be replaced. The EverBright dispenser will be sold at retail for $6.00, and a container of EverBright that will treat 30 loads of laundry will be sold for $2.40 at retail.
There are other products on the market that make claims about helping to brighten white clothes and reduce fading in colored clothes, but only OxyPower has been shown to shown to reduce the amount of laundry soap that consumers need to use. Based on independent researchers, OxyPower can reduce the amount of detergent required by 25%. OxyPower works by increasing the increasing the cleaning power of the laundry detergent and can be added directly to the washing machine with the laundry soap. No dispenser is required. OxyPower costs $7.20 at retail for a container that will treat 60 loads of laundry.
The average consumer does 240 loads of laundry a year and spends an average of $0.42 per load on laundry detergent.
What is the economic value of the EverBright to an average consumer over the course of one year?
A. $48.00
B. $3.60
C. $50.40
D. $25.20
QUESTION 4
Use the following information for the Questions about Mount Carmel Energy Drinks.
The marketing manager at Mount Carmel Energy Drinks was reviewing price and promotion alternatives for two products: WideAwake and VitAwake. Both products were designed to increase energy, but WideAwake is a primarily a caffeinated beverage whereas VitAwake also includes caffine and vitamins.
The price and promotion alternatives recommended for the two products by their respective brand managers included the possibility of using additional promotion or a price reduction to stimulate sales volume. A volume, price, and cost summary for the two products follows:
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VitAwake
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WideAwake
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Unit price
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$2.00
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$1.00
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Unit variable costs
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$1.40
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$0.25
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Unit contribution
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$0.60
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$0.75
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Unit volume
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1,000,000 units
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1,500,000 units
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Both brand managers included a recommendation to either reduce price by 10 percent or invest an incremental $150,000 in advertising.
How large of an increase in dollar sales will be necessary to recoup the incremental increase in advertising expenditures for VitAwake? For WideAwake?
A. VitAwake = $500,000
WideAwake = $250,000
B. VitAwake = $500,000
WideAwake = $200,000
C. VitAwake = $250,000
WideAwake = $200,000
D. VitAwake = $2,500,000
WideAwake = $1,700,000
QUESTION 5
What increase in dollar sales will be necessary to maintain the level of total contribution in dollars if the price of VitAwake is reduced by 10 percent? For WideAwake?
A. VitAwake = $200,000
WideAwake = $150,000
B. VitAwake = $700,000
WideAwake = $57,692
C. VitAwake = $675,000
WideAwake = $207,692
D. VitAwake = $900,000
WideAwake = $207,692
QUESTION 6
Villa Cappuccino, Inc. (VCI) manufactures a line of cappuccino machines that are distributed to large retailers.The line consists of three models. The following data are available regarding the models:
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Model
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Selling Price per unit
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Variable Cost per unit
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Demand/Year (units)
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Model CP1
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$175
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$100
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2,000
|
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Model CP2
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$250
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$125
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1,000
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Model CP3
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$300
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$140
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500
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3. VCI is considering the addition of a fourth model to its line. This model would be sold to retailers for $375. The variable cost of this unit is $225. The demand for the new Model CP4 is estimated to be 300 units per year. Sixty percent of these unit sales of the new model is expected to come from other models already being manufactured by VCI (10 percent from Model CP1, 30 percent from Model CP2, and 60 percent from Model CP3). VCI will incur a fixed cost of $20,000 to add the new model to the line.
4. If VCI adds the new Model CP4 to its line, how much will net income change?
A. $75,500
B. ($75,500)
C. ($380)
D. $380
QUESTION 7
Use the following information for the Questions about Connecticut Office Systems, Inc.
Connecticut Office Systems, Inc. had just completed its annual planning and has produced a number of important marketing initiatives for the next year. Most notably, company executives had decided to restructure its product-marketing team into two separate groups: (1) Corporate Office Systems and (2) Home Office Systems. Anna Blake was assigned responsibility for the Home Office Systems group, which would market the company's home office furniture to individuals. Her marketing plan, which included a sales forecast for next year of $25 million, was the result of a detailed market analysis and negotiations with individuals both inside and outside the company. Discussions with the sales director indicated that 40 percent of the company sales force would be dedicated to selling products of the Home Office Systems group. Sales representatives would receive a 15 percent commission on sales of home office systems. Under the new organizational structure, the Home Office Systems group would be charged with 40 percent of the budgeted sales force expenditure. The sales director's budget for salaries and fringe benefits of the sales force and non-commission selling costs for both the Corporate and Home Office Systems groups was $7.5 million.
The advertising and promotion budget contained three elements: trade magazine advertising, cooperative newspaper advertising with Connecticut Office Systems, Inc. dealers, and sales promotion materials including product brochures, technical manuals, catalogs, and point-of-purchase displays. Trade magazine ads and sales promotion materials were to be developed by the company's advertising and public relations agency. Production and media placement costs were budgeted at $300,000. Cooperative advertising copy for both newspaper and radio use had budgeted production costs of $100,000.
Connecticut Office Systems, Inc.'s cooperative advertising allowance policy stated that the company would allocate 5 percent of company sales to dealers to promote its office systems. Dealers always used their complete cooperative advertising allowances.
Meetings with manufacturing and operations personnel indicated that the direct costs of material and labor and direct factory overhead to produce the Home Office System product line represented 50 percent of sales. The accounting department would assign $600,000 in indirect manufacturing overhead (for example, depreciation, maintenance) to the product line and $300,000 for administrative overhead (clerical, telephone, office space, and so forth). Freight for the product line would average 8 percent of sales.
Blake's staff consisted of two product managers and a marketing assistant. Salaries and fringe benefits for Ms. Blake and her staff were $250,000 per year.
Prepare a pro forma income statement for the Home Office Systems group given the information provided. Based on that pro forma income statement, what is their expected net income?
A. $3,950,000
B. $2,950,000
C. $950,000
D. ($950,000)
QUESTION 8
At what level of dollar sales will the Home Office Systems group break-even?
A. $4,550,000
B. $1,633,522
C. $20,681,818
D. $19,545,454
QUESTION 9
Use the following information for the Questions about Hamden Vineyards.
Hamden Vineyards was founded by two brothers, Harvey and Mel Coltrane, and has been producing wines for over 30 years. Recently, HV invested $450,000 to plant grapes that will be used to make a new variety of wine. The national market for the new variety of wine is estimated to be 1.2 million cases annually with 12 bottles of wine per case.
HV plans to roll the distribution of the new wine out over a four-year time horizon, distributing to the Northeast the first year, adding the Mid-Atlantic states the second year, the South the third year, and the Midwest and West the fourth year. The Northeast represents 25% of the national market, the Mid-Atlantic States represents 15% of the national market, the South represents 30% of the total market, and the Midwest and West combined represent 30% of the national market.
To encourage wholesalers to distribute the new wine and promote it to retailers, wholesalers will receive a 10% allowance (based on their purchase price). Standard margins in the industry for this type of product are a 20% markup over cost for retailers and an 8% markup over cost for wholesalers. The variable costs for materials and labor associated with producing the new will be $5.50 per bottle.
During the first year, Hamden Vineyards plans to host a series of wine tasting in leading wine shops to introduce consumers to the new wine. The cost of the tastings is budgeted at $125,000. The introduction of the new wine will increase fixed overhead by $130,000 for the year.
Harvey and Mel agree on the promotional campaign for the new wine, but Harvey thinks that the retail price for the wine should be $16.20 per bottle. Mel, on the other hand, thinks that the price should be set at a level that will ensure a contribution of $85.00 per case.
Based on Harvey's plan, what is the contribution per case?
A. $69.00
B. $62.77
C. $5.23
D. $5.75
QUESTION 10
Based on Mel's target contribution per case, what is the breakeven market share for the first year?
A. 0.69%
B. 0.25%
C. 1.00%
D. 2.76%