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Break-even analysis: Barry Carter is considering opening a music store.

Barry Carter is considering opening a music store. He wants to estimate the number of CDs he must sell to break even. The CDs will be sold for $13.98 each, variable operating costs are $10.48 per CD, and annual fixed operating costs are $73,500.
a. Find the operating breakeven point in number of CDs.
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 2,000 CDs per month, should he go into the music business?
d. How much EBIT will Barry realize if he sells the minimum 2,000 CDs per month noted in part c?

Solution Preview

a. Find the operating breakeven point in number of CDs.

Operating Break even point= ( Sales IN CDS)= FIXED COSTS /CONTRIBUTION PER UNIT=

=73500/(13.98-10.48)
21000 units

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

The ...

Solution Summary

This solution shows step-by-step calculations to find the operating break-even point, total operating costs, and EBIT of the music business. All workings and formulas are shown.

$2.19