Question

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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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