[1] BEST BUY background and set-up.

Best Buy is considering carrying the latest tablet, the ClearHead, offered by Davesong.   Along with advertising costs, Best Buy will incur variable overhead to train personnel on the tablet and fixed overhead for store displays. The following information pertains to Best Buy’s revenue and costs for carrying the new tablet.

ClearHead cost                                                                                      $215.00

Shrinkage/Damage                                                                            8% of SP

Customer Service OH                                                                        7% of SP

Additional U.S. Store OH                                                                 $750,000

National Advertising/Promotion                                              $2,500,000

Retail Selling Price      $449.00

Calculate the following:

[A] Contribution per tablet unit

[B] Break-even volume in tablet units and in dollars

[C] Net profit if 25,000 tablets are sold

[D] Necessary tablet unit volume to achieve a $5,000,000 profit.

[2] SIMON FULLER background and set-up.

To generate more viewership and sales, Simon Fuller, the creator of American Idol, is planning a 15-year commemorative DVD with the best and worst auditions of the first 15 seasons.  Viewers would vote on what to include and the DVD would be released in 2017.  Marketing analysts have estimated that 375,000 DVDs would be sold.  Fuller will produce the DVD and sell it to retailers.  If Fuller goes through with the plan, he will need to invest $1,500,000 to develop and produce the audience voting and develop the distribution channel.  Other costs are as follows:

Cost of distribution rights                                                               $125,000

Label design                                                                                            $10,000

Package design                                                                                      $25,000

Advertising                                                                                        $2,450,000

Reproduction of copies (per 1,000)                                                     $300

Manufacture of labels and packaging (per 1,000)                         $200

Royalties (per 1,000)                                                                                 $750

The suggested retail price for the DVD is $12.99 per unit.  The retailer’s margin is 40%.

[A] What is the DVD’s unit contribution and contribution margin for Fuller?

[B] What is the break-even point in units? In dollars?

[C] Assume that sales meet the expected forecast.  What is the dollar amount of net profit/loss after accounting for Fuller’s investment? 

[D] If sales meet the expected forecast, what is Fuller’s ROI?