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Exercise 6.20 a-c (Part Level Submission) Kirkland Video Games Inc. is developing a new video game....

Exercise 6.20 a-c (Part Level Submission)

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 $240 per copy. Variable costs to produce and sell the video game amount to $55 per copy. Fixed costs amount to $438,450. The company anticipates selling 430 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 12 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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Homework Answers

Answer #1
Per Unit Total
Units (430*12) 5160
Sales Revenue $        250 $ 1,290,000
Less: Variable Costs $           55 $    283,800
Contribution $        195 $ 1,006,200
Less: Fixed Costs $    438,450
Operating Income $    567,750
Fixed Costs (a) $ 438,450
Contribution per Unit (b) $        195
Units to break even (a/b) 2248 Units
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