EXERCISES 1. Executives of Studio Recordings, Inc. produced the la...

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1. Studio Recordings, Inc.
(a) Contribution per CD unit
Contribution Margin = Revenue - Variable expenses
Contribution Margin = \$9 - (\$1.25 + \$0.35 + \$1.00)
Contribution Margin = \$9 - \$2.60
Contribution Margin = \$6.40
(b) Break-even volume in CD units and dollars
Break-even Volume = Fixed Expenses ÷ Contribution Margin per CD
Break-even Volume = (\$275,000 + \$250,000) ÷ \$6.40
Break-even Volume = \$525,000 ÷ \$6.40
Break-even Volume = 82,035 units
Contribution Margin Ratio
Contribution Margin ÷ Revenue
= \$6.40 ÷ \$9.00
Contribution Margin Ratio = 71.11%
Therefore;
Break-even Point in sales dollars = Total Fixed Expenses ÷ Contribution Margin Ratio
Break-even Point in sales dollars = \$525,000 ÷ 71.11%
Break-even Point in sales dollars = \$738,293
(c.) Net profit if 1 million CDs are sold
Net Profit = Revenue - Total Expenses
Net Profit = (1,000,000 x \$9.00) - [\$525,000 + (1,000,000 x \$2.60)]
Net Profit = \$9,000,000 - \$3,125,000
Net Profit = \$5,875,000
(d) Necessary CD unit volume to achieve a \$200...

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