Question

BMG Music ran a direct TV campaign on a special anniversary album. Each album sold for $49.99 at retail. The company charged each customer with $7.99 for shipping and handling. The cost of producing the album was 45% of the retail price.

The Direct Marketing cost for the promotion were as follows: TV ad design costs are $85,000; to place the spots on air cost $750,000. It used a telephone call center to handle inbound telemarketing calls; process each order cost $3.50 per order. The Company sold 85,000 units.

1) What was the Unit dollar sale of each order?

2)What was the per unit cost of each order?

3)What was the per unit variable profit of each order?

4) What was the variable margin for each order?

5)What was the total dollar sales for the promotion?

6)What was the gross profit dollars for the promotion?

7) What was the total marketing direct costs?

8) What was the unit break even for the promotion?

9) What was the contribution profit ( operating profit) for the promotion?

10) What was the contribution margin for the promotion?

Use dollar signs, commas and % signs; round up except for percentage take to one decimal place

Bonus question:

If BMG wants to pay out a 10% commission on sales to sales representatives , what would price be so they have to sell the record for without lowering the profitability?

Answer 1

Retai Price of Album = $49.99 , Total Retail Value for 85000 units = 49.99*85000 = $4249150

Cost of Per Album = 40% * 49.99 = .4*49.99 = $19.996

Therefore Total Cost for producing Album = $19.996* 85000 = $1699660

TV ad Cost = $85000

Air Cost = $750,000

Call Handling = Total Orders * Cost per order = 85000 * 3.50 = $297500

Total Cost = TV ad Cost + Air Cost + Call Handling + Album Producing = $1699660 + $85000 +$750000 + $297500

= $2832160

b) Per unit Cost = Total Cost/no.of units=2832160/85000 = $ 33.13

a) Unit Sale Price = Retail Price + Handling and Shipping Cost = $49.99 + $7.99 = $57.98

d) Total Dollar value for promotion = TV ad + Inbound Marketing + Air Post = $85000 + $750000 + $3.5*85000

= 85000 + 750000 + 297500 = $1132500

7) Total Marketing Direct Costs = TV AD+ Air Post = $85000 + $750000 = $835000