JingleGymApp, a new division of JingleGym will be responsible for creating and s

Question

JingleGymApp, a new division of JingleGym will be responsible for creating and selling an app version of the very successful JingleGym. The company expects that the new division will be housed in a separate floor and will pay a rent of $20,000 to JinglyGym. Salaries for the developers and a manager will total $400,000. New computers will cost $300,000 and will be depreciated annually at the rate of 10% of cost. Advertising expenses are expected to be $50,000. The cost of producing an app is negligible at 4% of the selling price but Apple's appstore charges a 30% commission for each app sold. With this data, JingleGym wants you to estimate the contribution margin (CM) and the break-even point (BEP) in dollars for the new division:

Explanation / Answer

Let the selling price of each app = s Variable cost = 4%*s + 30%*s =.34s contribution margin = (selling price - variable cost)/selling price =(s-.34s)/s = 66% break-even point, Profit =0 Fixed cost = $20,000 + $400,000+$300,000*10% + $50,000 = 500,000 Let break-even point be X Revenue = Variable cost + Fixed cost X*s = .34s*X +500,000 0.66Xs = 500,000 X =$757575.7576/s break-even point (BEP) in dollars = $757575.7576

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