Question

In: Statistics and Probability

Cash Money Records is considering publishing a new music album. The fixed cost of an album...

Cash Money Records is considering publishing a new music album. The fixed cost of an album preparation, studio time, and guest appearances is estimated to be $850,000. Variable costs are estimated to be $2 per album. The music label plans to sell access to the album for $10 each at various online marketplaces. (Report all Solutions on Excel documentation)

a. Build a spreadsheet model to calculate the profit/loss for a given demand. What profit can be anticipated with a demand of 115,000 purchases of the album?

b. Use a data table to vary demand from 100,000 to 300,000 increments of 50,000 to assess the sensitivity of profit to demand.

c. Use Goal Seek to determine the access price per copy that the record company must charge to break even with a demand of 235,000 copies.

Solutions

Expert Solution

Fixed Cost = $850,000

Total Variable cost = Demand * 2

Total Cost = Fixed cost + Total variable cost

Revenue = 10* demand

Profit = Revenue - Total cost

a) Prepare the following sheet

get this

ans: The profit that can be anticipated with a demand of 115,000 purchases of the album is $70,000

b) Create the following data table

get this

select the data table and use data-->what if analysis---:data table

get this

c) set the demand at 235,000

Break event is when the profit=0

set the data--->what if analysis--->goal seek

get this

ans: the access price per copy that the record company must charge to break even with a demand of 235,000 copies is $6

orchestra answered 2 years ago
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