Question

Monster Inc., the maker of personal computer games has been contacted by Hot Stuff Inc., which has developed a new technology for personal computer gamers which provides a new challenge for gamers. The new technology consists of a seat pad for the gamer’s chair which is connected to a control unit which is connected to the personal computer. When the gamer makes an error while playing Daytona 500 he/she receives a “mild” electric shock through the seat pad. The new technology, which has received extremely positive reviews from a panel of gamers, consists of the Daytona 500 game CD, the seat pad, the control unit and cables. In tests, by Monster Inc., the new technology has performed flawlessly, is considered safe and Monster Inc. is considering licensing Hot Stuff’s new gamer technology. The following cost information pertains to the new technology:

Hot Stuff Daytona 500 Software License .................... $200,000

New Equipment To Produce Seat Pads........................ $50,000

Advertising and promotion .......................................... $150,000

Material & Royalties “Daytona 500” Game (per 100 CDs) . $500

Material & Labor For Seat Pad (per 10 pads) .................... $150

Control Unit And Cables (per unit) .........................................$5

Market research estimates that the market for the new Daytona 500 game and “Hot Stuff” is 1,000,000 units at a retail price of $75, which includes the game CD, seat pad, control unit and cables.   

Monster Inc. traditionally sells through major retailers like CompUSA. The retailer’s traditional margin is 20%.

** PLEASE WRITE FORMULAS USED

a. How much revenue does Monster Inc. receive for each unit sold?


b. What is Monster Inc.’s contribution margin per unit?


c. What is the break-even volume in units?_____________________________


d. How many units did Monster sell if Total Sales Revenue = $1,000,000?   


e. What is the profit if Monster’s Total Sales Revenue = $1,000,000?

Answer 1

a) retail price $75

retailer margin is 20%

marker selling =(75*100%)*120

=$62.5

revenue does Monster Inc. receive for each unit sold is $62.5

2)

particular	calculation	amount in $
revenue	62.5*1000000	6,25,00,000
less Variable cost
Material & Royalties	(500*1000000)/100	5000000
Material & Labor For Seat Pad	(150*1000000)/10	15000000
Control Unit And Cables	5*1000000	5000000
contribution		3,75,00,000

contribution per unti=37,500,000/1,000,000=37.5 per unit

c)break even unit= fixed cost/contribution per unit

=400,000/37.5

10,667 units

Software License	2,00,000
Equipment	50,000
Advertising And Promotion	1,50,000
Total Fixed Cost	4,00,000

d)otal Sales Revenue = $1,000,000

no of unit =sales value /sale price per unit

=1,000,000/62.5

=16000 units

e)profit if Monster’s Total Sales Revenue = $1,000,000

no of unit sold from above =16000 unit

contribuition per unit =37.5

contribuition 37.5*16000=600,000

less fixed cost 400,000

profit=200,000

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