Question

Kirkland Video Games Inc. is developing a new video game. It is the most sophisticated game on the market. It sells the video game for $205 per copy. Variable costs to produce and sell the video game amount to $45 per copy. Fixed costs amount to $352,000. The company anticipates selling 380 copies of the game per month. The company’s policy is to stop producing the video game as soon as a competitor comes out with a more sophisticated version.

(a)

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Calculate the amount of operating income the company will earn if it takes 11 months for a competitor to produce a more sophisticated version of the video game.

Operating Income

$

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(b)

Calculate how many units of the video game the company will have to sell in order to break even.

Units to break even

units

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Answer 1

Answer
1
Sales	$      856,900	380*11*205
Variable Costs	$      188,100	380*11*45
Contribution Margin	$      668,800
Fixed Expenses	$      352,000
Net Operating Income	$      316,800
2
Break Even Units:-
Fixed Cost/Contribution per unit
Fixed cost = $352,000
Contribution per unit = $205 - $45 = $10\60
BEP = $352,000 / $160 = 2200 units
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