Low Contribution & High Fixed Costs - the Problems for Nintendo’s Wii U

A classic example here of how earning a low contribution per unit can lead to big problems for a business if it does not sell high-enough volumes - particularly when fixed costs are high.Nintendo's new "next-generation" console retails in the key US market for a selling price of $299. However, the (variable) cost of the components used and assembly are pretty close to the selling price, which leaves little if any scope for Nintendo to make a contribution on each console unit sold. Don't forget, it also needs to allow its retail and other distributors to earn a satisfactory margin too.Of course Nintendo can recoup much of the cost back through lucrative royalty payments from games-developers who are licenced to develop for the new console. But the big problem for Nintendo would be if the Wii U fails to sell in large quantities. The early indications of consumer demand do not look good...This excellent short video from CNN takes a look at the variable costs of making the Wii U.