Breakeven analysis…
Barry Carter is deliberation opening the song store. He wants to guess the series of CDs he contingency sell to mangle even. The CDs will be sole for $13.98 each, non-static handling costs have been $10.48 per CD, as well as annual bound handling costs have been $73,500.
a. Find the handling breakeven indicate in series of CDs.
b. Calculate the sum handling costs during the breakeven volume found in partial a.
c. If Barry estimates which during the smallest he can sell 2,000 CDs per month,
should he go in to the song business?
d. How most EBIT will Barry comprehend if he sells the smallest 2,000 CDs per
month remarkable in partial c?
{ 2 comments… read them below or add one }
a. He nets 3.50 (13.98 – 10.48) per CD. His monthly fixed cost is 73500/12 = $6125. He breaks even at $6125/$3.50 = 1750 units sold.
b. Operating costs per month at breakeven point = 6125 + 1750*10.48 = 24665
c,d. yes; he will make 250*3.50 = $875 in earnings before tax and interest (but after operating expenses).
The question’s don’t really specify what unit they want. So, but it does mention “annual” costs, so I’m assuming they’re asking for a yearly answer. If not, then just simply divide my answers by 12
A) This is simple. If the CD’s are sold for $13.98, and it cost him $10.48/CD, then that means that he’s profiting $3.50/CD (because $13.98 – $10.48 = $3.50.) If he wants to make $73, 500, that mean he needs to sell $73500.00 divided by $3.50, or, in other words, 21000 CD’s
B) The total operating cost is equal to the number of CD’s sold multiplied by the variable operating cost, then tack on the annual fixed operating costs. So, in other words 21000 multiplied by $10.48, which equals $220080. Now tack that $73500 on to get your final answer of $293580.
C) For it to be worth his while, he needs to sell more than 21000 CD’s for the year (the breakeven point.) If he’s going to sell a minimum of 2000 CD’s per month, that means he’ll sell a minimum 24000 CD’s for the year (assuming that he works year-round.) 24000 CD’s is more than 21000, so, yes he should go into business. Even if he takes a whole month off, then he’ll still sell a minimum of 22000, which is still more than what he needs; he’ll still make a profit (of $3500.)
D) EBIT is total income, regardless of expense. If he sells 2000 CD’s per month for 12 months, then he sells 24000 CD’s for the year. And he’s selling the CD’s for $13.98 ea, so multiply $13.98 by 24000 to obtain EBIT. The total is $335520.00.
Hope that’s as simple as it can be. Hit me up if anything’s unclear