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Management Accounting: Unit Contribution and Contribution Margin

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Video Concepts, Inc. (VCI) markets video equipment and film through a variety of retail outlets. Presently, VCI is faced with a decision as to whether it should obtain the distribution rights to an unreleased film titled Touch of Orange. If this film is distributed by VCI directly to large retailers, VCI's investment in the project would be $150,000. VCI estimates the total market for the film to be 100,000 units. Other data available are as follows:

Cost of distribution rights for film

Label design

Package design


Reproduction of copies (per 1,000)

Manufacture of labels and packaging (per 1,000)

Royalties (per 1,000)

VCI's suggested retail price for the film is $20 per unit. The retailer's margin is 40 percent.

A. What is VCI's unit contribution and contribution margin?

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Solution Preview

Contribution Margin = Sales - Variable Cost

The variable costs are
Reproduction of copies (per 1,000)
Per unit = 4,000/1,000 ...

Solution Summary

The solution explains how to calculate the unit contribution and contribution margin.

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