Breakeven Analysis - Mr. Twitty
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Problem #1
Mr. Twitty, an emerging rapper, is getting ready to cut his first CD, called "Western Rap." The cost of recording the CD is $5,000.00 but copies are $5.00 apiece.
a. If the CDs can be sold for $15.00 each, how many CDs must be sold to break even? I tried to use POM/QM and came up with only 5. I believe that this is incorrect. Please solve(step-by-step) this problem so that I can know what I did incorrectly.
What is the breakeven point in dollars? I think the breakeven point in dollars is supposed to be $7,500.00. Plese provide step-by-step calculations so that I can know what, if anything, I did incorrectly.
Problem #2
Mr. Twitty is confident that demand for his "Western Rap" CD will substantially exceed the break-even point computed in Problem 6-3. So. He is contemplating having his CD cut at a classier (and pricier) studio. The cost to record the CD would rise to $9000.00. However, since this new studio works with very high volume, production costs would fall to $2.00 per CD.
a. What is the breakeven point for this new process? I came up with 13.33 which I believe is incorrect. Could you please do a step-by-step calculation so that I can see what I am doing incorrectly.
b. Compare this process to the process proposed in the previous problem.
I am not sure about this--can you help me!
c. For what volume of demand should Mr. Twitty choose the classier studio?
I cam up with $11,666.67. Please do step-by-step calculation so that I can know what the correct answer is.
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Solution Summary
Mr. Twitty, an emerging rapper, is getting ready to cut his first CD, called "Western Rap." The cost of recording the CD is $5,000.00 but copies are $5.00 apiece.
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Mr. Twitty, an emerging rapper, is getting ready to cut his first CD, called "Western Rap." The cost of recording the CD is $5,000.00 but copies are $5.00 apiece.
a. If the CDs can be sold for $15.00 each, how many CDs must be sold to break even?
Break Even = Total Fixed Cost / Contribution Margin
Contribution Margin = ...
Education
- BE, Bangalore University, India
- MS, University of Wisconsin-Madison
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