Bank of America has a new division called BankofAmerica Apps. They produce Banki

Question

Bank of America has a new division called BankofAmerica Apps. They produce Banking Apps for iPADs/iPhones. Bank of America expects that this new division will be housed in a separate floor and will pay a rent of $20,000 to Bank of America. 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 appstore will charge a 30% commission for each app sold. With this data, Bank of America wants you to estimate the contribution margin and the break-even point in dollars for the new division:

A) there is insufficient data to calculate either value.
B) CM=66%; BEP=$757,576
C) CM=34%; BEP=$1,166,667
D) CM=66%; BEP=$1,166,667
E) CM=34%; BEP = $757,576

Justify how you got the answer please. Thank you!

Explanation / Answer

Fixed Cost = $20,000 + $400,000+10%*$300,000 + $50,000 = $500000 Let the selling price be s Variable cost = (4%+ 30%)*s = 0.34s CM = (Selling price - Variable cost)/selling price (s-0.34s)/s = 66% Breakeven Pioint = Fixed Cost/CM = $500000/66% =$757575.7576 Ans: B) CM=66%; BEP=$757,576

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.