Question

Stone's Video Shop has two employees. The manager, Brian Stone, is paid $9,000 per month The other employee, John, is paid $8,000. In addition, John is paid a commission of $12.00 per video that is rented. Other monthly costs are store rent $7,000 plus $8.00 variable cost per rented video. Depreciation on videos is $7,500, utilities $3,000 and advertising $3,500. The price of a rented video is $100.00 a. Determine the variable cost per rented video and the total monthly fixed costs (4 marks) b. Compute the break-even point in units and sales dollars. (4 marks c. Prepare a C-V.P graph, assuming a maximum of 1,000 rented videos a month (4 marks) d. Determine the net income, assuming 700 videos are rented in the month (2 marks) e. List three (3) assumptions of Break-even analysis (3 marks) f Explain how each of the following will affect the break-even point. Assume in each case that all other factors remain constant i. A decrease in selling price ii. A decrease in fixed costs iii. A decrease in variable costs iv. An increase in the level of sales (8 marks)

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