Question -

Q1. Screen Time is a direct marketer of popular DVD movies. Following is information about its revenue and cost structure:

Selling Price - $13.00 per DVD

Variable Costs:

Production (manufacturing costs) - $3.00 per DVD

Selling and Administration (non-manufacturing costs) - $1.00 per DVD

Fixed Costs:

Production (manufacturing costs) - $1,000,000 per year

Selling and Administration (non-mfg costs) - $3,000,000 per year

In which range does the break-even point fall?

A. Between 300,000 and 350,000 units

B. Between 350,001 and 400,000 units

C. Between 400,001 and 450,000 units

D. Between 450,001 and 500,000 units

Q2. Screen Time is a direct marketer of popular DVD movies. Following is information about its revenue and cost structure:

Selling Price - $13.00 per DVD

Variable Costs:

Production (manufacturing costs) - $3.00 per DVD

Selling and Administration (non-manufacturing costs) - $1.00 per DVD

Fixed Costs:

Production (manufacturing costs) - $1,000,000 per year

Selling and Administration (non-mfg costs) - $3,000,000 per year

The royalty paid to the film's creators is equal to two-thirds of the variable production cost. Assume the creators are willing to cut the royalty in half if the price is reduced by the same dollar amount as the reduction in royalty. What is the new contribution margin ratio?

A. 69%

B. 75%

C. 85%

D. 72%