Marketing Management

Sony Eye Toy Assignment

TEAM ID: __L-13___________________________________

Instructions

1. The assignment has two questions. Both questions must be answered.

2. The points allocated to each question are indicated next to the question. Total
points add up to 50.

3. Assignment is due at Midnight on Friday, April 28, 2017.

4. Last page has hints for question 2.

1
 Break Even Point: Eye Toy Play (mention source, where applicable)
25 Points

Eye Toy Play

Fixed Costs

1. Development Cost (Pg 28, 3rd Para) €2.5 Million

2. Marketing Campaign (Pg 30, 4th Para) €5 Million

Total Fixed Costs €7.5 Million

Variable Costs

1. Packaging and Distribution Cost (Pg 30,

€2 / unit
2nd Para)

2. Intra Company Royalties (Pg 30, 2nd Para) €2 / unit

3. Camera (minimum 250,000 units) (Pg 30,

€12 / unit
2nd Para)

Total Variable Costs €16 / unit

Price per Unit to Trade (Revenue for Sony)

€35 / unit
(Pg 30, 3rd Para)

Margin of Sony per unit in Euros €19 / unit

Break Even Units 394,737 units

Street Price per Unit (Price to Consumers) (Pg

€60 / unit
30, 3rd Para)

VAT in Euros €10.5 / unit

Margin for Trade in Euros €14.5 / unit

2
 1. Break Even Point: Groove (mention source where applicable - for
assumptions and hints, see next page)
25 Points

Eye Toy Groove

Fixed Costs

1. Development Cost (Pg 28, 3rd Para) €2 Million

2. Marketing Cost (Assumption a) €2.5 Million

Total Fixed Costs €4.5 Million

Variable Costs

1. Packaging and Distribution Cost

€2 / unit
(Assumption b)

2 Intra Company Royalties (Assumption b) €2 / unit

Total Variable Costs €4 / unit

Price per Unit to Trade (Revenue for Sony) €8.75 / unit

Margin of Sony per unit in Euros €4.75 / unit

Break Even Units 947,368 units

Street Price per Unit (Price to Consumers) (Pg

€40 / unit
31, 3rd Para)

VAT in Euros €7 / unit

Margin for Trade in Euros €24.24 / unit

3
 Assumptions and Hints for Eye Toy Groove:

a. Assume that the fixed advertising expenses are half that of Eye Toy Play.
b. Assume that the two variable costs are the same as that of Eye Toy Play.
c. To calculate per unit revenue assume that the % trade margin for Play and
Groove is the same.

Use the Space Below to Show Calculations

Calculations for Eye Toy Play:

1. Margin of Sony per unit in Euros

= Price per unit to Trade – Total Variable Cost per unit
= Price per unit to Trade – (Packaging and Distribution Cost per unit + Intra
Company Royalties per unit + Camera Cost per unit)
= €35 - (€2 + €2 + €12)
= €35 - €16
= €19 per unit

2. Break Even Units:

= Total Fixed Cost / Margin of Sony
= (Development Cost + Marketing Cost) / Margin of Sony per unit
= (€2.5 + €5.0) * 10^6 / €19
= €7.5 * 10^6 / €19
= 394,737

3. VAT in Euros
= 17.5% of Street Price per unit
= 17.5% * €60
= €10.5 per unit

4. Margin for Trade in Euros

= Street Price per unit – VAT per unit – Price to Trade per unit
= €60 – €10.5 - €35
= €14.5 per unit

Calculations for Eye Toy Groove:

1. Marketing Cost
= 0.5* Marketing Cost of EyeToy Play (Based on Assumption a)
= 0.5 * €5 *10^6
= €2.5 Million

4
2. % Margin for Sony EyeToy Play
= Margin for Sony EyeToy Play / Price per Unit to Trade
= €19 / €35
= 54%
According to assumption 3, % Margin for EyeToy Groove = 54%.

Price per unit to Trade for EyeToy Groove

= Total Variable Cost per unit / (1- Margin%/100)
= €4 / (1-54/100)
= €8.8 per unit

3. Margin of Sony per unit in Euros

= Price per unit to Trade – Total Variable Cost per unit
= €8.8 - €4
= €4.8 per unit

4. Break Even Units:

= Total Fixed Cost / Margin of Sony
= €4.5 * 10^6 / €4.8
= 947,368 units

5. VAT in Euros
= 17.5% of Street Price per unit
= 17.5% * €40
= €7.0 per unit

6. Margin for Trade in Euros

= Street Price per unit – VAT per unit – Price to Trade per unit
= €40 – €7 - €8.8
= €24.24 per unit