Screen Time is a direct marketer of popular DVD movies. Following is information

Question

Screen Time is a direct marketer of popular DVD movies. Following is information about its revenue and cost structure:
Selling Price $13.00 per DVD Variable Costs:       Production (manufacturing costs) $3.00 per DVD       Selling and Administration (non-manufacturing costs) $1.00 per DVD Fixed Costs:       Production (manufacturing costs) $1,000,000 per year       Selling and Administration (non-mfg costs) $3,000,000 per year
In which range does the break-even point fall? Answer                                                   A.            Between 400,001 and 450,000 units                             B.            Between 450,001 and 500,000 units                             C.            Between 350,001 and 400,000 units                             D.            Between 300,000 and 350,000 units Screen Time is a direct marketer of popular DVD movies. Following is information about its revenue and cost structure:
Selling Price $13.00 per DVD Variable Costs:       Production (manufacturing costs) $3.00 per DVD       Selling and Administration (non-manufacturing costs) $1.00 per DVD Fixed Costs:       Production (manufacturing costs) $1,000,000 per year       Selling and Administration (non-mfg costs) $3,000,000 per year
In which range does the break-even point fall? Screen Time is a direct marketer of popular DVD movies. Following is information about its revenue and cost structure:
Selling Price $13.00 per DVD Variable Costs:       Production (manufacturing costs) $3.00 per DVD       Selling and Administration (non-manufacturing costs) $1.00 per DVD Fixed Costs:       Production (manufacturing costs) $1,000,000 per year       Selling and Administration (non-mfg costs) $3,000,000 per year
In which range does the break-even point fall? Selling Price $13.00 per DVD Variable Costs:       Production (manufacturing costs) $3.00 per DVD       Selling and Administration (non-manufacturing costs) $1.00 per DVD Fixed Costs:       Production (manufacturing costs) $1,000,000 per year       Selling and Administration (non-mfg costs) $3,000,000 per year
In which range does the break-even point fall? Between 400,001 and 450,000 units Between 450,001 and 500,000 units Between 350,001 and 400,000 units Between 300,000 and 350,000 units Selling Price $13.00 per DVD Variable Costs:       Production (manufacturing costs) $3.00 per DVD       Selling and Administration (non-manufacturing costs) $1.00 per DVD

Explanation / Answer

Contribution margin = 13-3-1 = $9/DVD

If X=breakeven units, 9X = fixed costs = 1,000,000+3,000,000 = 4,000,000

So X = 444,444

So the answer is A) Between 400,001 and 450,000 units

Hope this helped ! Let me know in case of any queries.

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