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Breakeven Analysis - Mr. Twitty

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.

Solution Preview

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 = ...

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.

$2.19