7. Barry Carter is considering opening a video store. He wants to estimate the n

Question

7. Barry Carter is considering opening a video store. He wants to estimate the number of DVDs he Breakeven analysis must sell to break even. The DVDs will be sold for $14.05 each, variable operating costs are $9.71 per DVD, and annual fixed operating costs are $73,300 a. Find the operating breakeven point in number of DVDs. b. Calculate the total operating costs at the breakeven volume found in part (a) c. If Barry estimates that at a minimum he can sell 2,060 DVDs per month, should he go into the video business? d. How much EBIT will Barry realize if he sells the minimum 2,060 DVDs per month noted in part (c)? units. (Round to the nearest integer.) a. The operating breakeven point is b. The total operating costs at the breakeven volume is $ c. The total units that Barry can sell in a year is Should Barry go into the video business? (Select from the drop-down menu.) Barry (1)go into the video business. d. The EBIT will be S (1) O should not (Round to the nearest dollar.) units. (Round to the nearest integer.) (Round to the nearest dollar.) O should

Explanation / Answer

a) Find the operating breaking point in number of DVD’s?

Answer :             Q = $73,300/(14.05-9.71)

                                     = $73,300/4.34

                                      =16889.4

                                  Q = 16889 units

b) Calculate the total operating costs at the breakeven volume found in part(a)

    Answer:        =fixed cost +(quantity*variable cost)

                            = F + (Q*VC)

                            = 73,300+(16,889*9.71)

                            =$237,292.19

                            = $237292   

c) If Barry estimates that at a minimum he can sell 2,060 DVD’s per month, should he go into the video business?

            Answer :          = 2060*12 =24,720 DVD’s per year

                                   2060 units per year value =24,720

                     Operating break even is 7,831 units (24,720-16,889)

                   Therefore Barry should go in to the DVD’s business

d) How much EBIT will Barry realize if he sells the minimum 2,060 DVD’s per month noted in part c?

           Answer:       EBIT =(P*Q)-FC-(VC*Q)

                                   EBIT = (14.05*24,720)-73,300-(9.71*24,720)

                                    EBIT = 347,316-73,300-240,031.2

                                   EBIT = 33,984.8

          

                                    EBIT = $33,985

a)the operating break even point is 16,889 units

b)the total operating costs at the break even volume is $237,292

c)the total units that Barry can sell in a year is 24,720 units

       (1) Barry should go in to the video business

d) the EBIT will be $33,985

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