Question

Exercise 6.20 a-c Kirkland Video Games Inc. is developing a new video game. It is the most sophisticated game on the market. It sells the video game for $215 per copy. Variable costs to produce and sell the video game amount to $80 per copy. Fixed costs amount to $305,100. The company anticipates selling 320 copies of the game per month. The company's policy is to stop producing the video game as soon as a competitor comes out with a more sophisticated version. Calculate the amount of operating income the company will earn if it takes 9 months for a competitor to produce a more sophisticated version of the video game. Operating Income SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT Calculate how many units of the video game the company will have to sell in order to break even. Units to break even units SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT

Answer 1

1)	Number of units sold = 320 per month *9 month=2880
	Operating Income
	Sales	$         6,19,200
	(2880*215)
	Less:
	Variable cost	$         2,30,400
	(2880*$80)
	Fixed cost	$         3,05,100
	Operating income	$             83,700
2)	Contribution Margin Per Unit = Sales price - variable cost per unit
	= $215-80
	= $135 per unit
	Break-even Point In Unit = Fixed Cost/ Contribution Margin Per Unit
	= $305100/135
	=2260 units
3)	Total units can be sold = 320*5
	=1600 units
	Desired profit + fixed cost = $26100+305100
	=$331200
	The contribution margin from 1600 units should be equal to $331200
	Hence sale value would be
	=$331200+(1600 units *$80 per unit variable cost)
	=$331200+128000
	=$459200
	Selling price should be = sale value / number of units
	=$459200/1600
	=$287
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