Breakeven analysis Barry Carter is considering opening a video store. He wants t

Question

Breakeven analysis Barry Carter is considering opening a video store. He wants to estimate the number of DVDs he must sell to break even. The DVDs will be sold for $13.89 each, variable operating costs are $9.88 per DVD, and annual fixed operating costs are $74,000. 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 2,070 DVDs per month, should he go into the video business? d. How much EBIT will Barry realize if he sells the minimum 2,070 DVDs per month noted in part (c)? a. The operating breakeven point is units. (Round to the nearest integer) b. The total operating costs at the breakeven volume is $ (Round to the nearest dollar) c. The total units that Barry can sell in a year is units. (Round to the nearest integer.) Should Barry go into the video business? (Select from the drop-down menu.) Barry d. The EBIT will be (Round to the nearest dollar.) I go into the video business.

Explanation / Answer

a) Breakeven point = Fixed Cost / (P - VC) = 74,000 / (13.89 - 9.88) = 18,454

b) Total operating cost = 18,454 x 9.88 + 74,000 = 256,326

c) Barry should go into the video business as he would make profit because his annual unit sales = 2070 x 12 = 24,840 is greater than the breakeven unit sales.

d) EBIT = 24,840 x (13.89 - 9.88) - 74,000 = 25,608

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