Q&A: I need help with this question?
Question by CM546: I need help with this question?
The traditional financial technique of marginal costing is sometimes used as an aid in short term decision making within music and entertainment companies.
Understanding the distinction between fixed and variable costs and how this distinction applies to any activity enables us to deduce the break-even point for the activity in question.
Explain the uses of breakeven analysis, define breakeven point and analyse the weakness of this technique.
Task 2
You are an artist manager who has been offered two record deals for one of your acts. One is offering a traditional advance and royalties deal, the other is offering a 50/50 net receipts deal. Both deals have the same advance (£50,000) and are outlined in the attached contract extracts. As the manager, you have to explain to your client(s), the Act, what this means in financial terms. It is generally expected that the predicted sales level will be 100,000 units.
Normal costs associated with
CD Published Dealer Price £7.50 Digital Download Retail Price – £0.79
Discounts 12% Distribution Fee – 40% of retail price
Distribution Fee 10%
MCPS 8.5% of published DP
Faulties 1%
Manufacturing £0.48p per unit
1. Work out the royalty revenue, under the traditional deal, for a single CD unit.
2. Work out the royalty revenue, under the traditional deal, for a single digital download.
3. Work out the re-coupment point for the act under the traditional deal assuming that 75% is physical product, 20% is digital and the remaining 5% (£2,500.00) is synch income.
4. Work out the per CD unit credit and the per unit download credited to the artists account under the 50/50 net receipts deal.
5. If the record company spend a total of £100,000 marketing the album; work out the
re-coupment point for the act under 50/50 net receipts deal, assuming that 80% is physical product (£118.000), 20% is digital (£29,500) & the same sum of money is received for ‘synch income’ (£2,500.00).
6. Compare & contrast the two types of deal and comment on your findings. Remember this is what you would have to tell your clients – the Act.
Best answer:
Answer by TheBigFGuy
Ouch! You made my head hurt with all these words.
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