1)
Break-even point in number of video disks = Total fixed cost / (Selling price per disk - Variable cost per disk)
= $420,000 / ($21 per disk - $9 per disk)
= $420,000 / $12 per disk
= 35,000 disks
Therefore, break-even point in number of disks are 35,000.
2)
Sales revenue (200,000*120/100 = 240,000*$21) | $5,040,000 |
Less: Variable costs ($7 + $2 = $9*240,000) | ($2,160,000) |
Contribution margin | $2,880,000 |
Less: Fixed costs | ($420,000) |
Net Income | $2,460,000 |
Therefore, net income is the $2,460,000 with increase of 20% in sales units.
3)
Sales revenue (200,000**$21) | $4,200,000 |
Less: Variable costs ($7 + $2 = $9*200,000) | ($1,800,000) |
Contribution margin | $2,400,000 |
Less: Fixed costs | ($420,000) |
Net Income | $1,980,000 |
Therefore, the same number of units of 200,000 are required to sell to earn the target net income of $1,980,000 with no changes in selling price of $21.
4)
Selling price to cover 30% increase without any change in the contribution margin = $21 * 130/100
= $27.30
There is no change in the contribution margin (before it was 57.14% => $21-$9 = $12/$21*100) (after it is 57.14% => $27.30 - [$9*130/100] = $15.60/$27.30*100).
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