Question

Disk City, Inc. is a retailer for digital video disks. The projected net income for the...

Disk City, Inc. is a retailer for digital video disks. The projected net income for the current year is $2,600,000 based on a sales volume of 280,000 video disks. Disk City has been selling the disks for $22 each. The variable costs consist of the $9 unit purchase price of the disks and a handling cost of $2 per disk. Disk City’s annual fixed costs are $480,000. Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 30 percent. (Ignore income taxes.)

Required: Calculate Disk City’s break-even point for the current year in number of video disks. (Round your final answer up to nearest whole number.) What will be the company’s net income for the current year if there is a 15 percent increase in projected unit sales volume?

What volume of sales (in dollars) must Disk City achieve in the coming year to maintain the same net income as projected for the current year if the unit selling price remains at $22? (Do not round intermediate calculations. Round your final answer to the nearest whole number.)

In order to cover a 30 percent increase in the disk’s purchase price for the coming year and still maintain the current contribution-margin ratio, what selling price per disk must Disk City establish for the coming year? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1. Break-even point in units = Fixed costs/Contribution margin per unit = $480000/[$22 - ($9 + $2)] = $480000/$11 = 43636.36 = 43637 units

2.

Sales (280000 x 1.15 x $22) 7084000
Variable costs (280000 x 1.15 x $11) 3542000
Contribution margin 3542000
Fixed costs 480000
Net income $ 3062000

3. Required sales volume in dollars = (Fixed costs + Desired profit)/Contribution margin ratio

Purchase price = $9 x 1.30 = $11.70

Contribution per unit = $22 - ($11.70 + $2) = $22 - $13.70 = $8.30

Contribution margin ratio = $8.30/$22

Volume of sales in dollars = ($480000 + $2600000) x $22/$8.30 = $8163855.42 = $8163855

4. Current contribution margin ratio = $11/$22 = 50%

Current variable cost ratio = 50%

Coming year variable cost = $13.70

Coming year selling price = $13.70/50% = $27.40

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Disk City, Inc. is a retailer for digital video disks. The projected net income for the...
Disk City, Inc. is a retailer for digital video disks. The projected net income for the current year is $2,050,000 based on a sales volume of 290,000 video disks. Disk City has been selling the disks for $17 each. The variable costs consist of the $6 unit purchase price of the disks and a handling cost of $2 per disk. Disk City’s annual fixed costs are $560,000. Management is planning for the coming year, when it expects that the unit...
Detroit Disk, Inc. is a retailer for digital video disks. The projected net income for the...
Detroit Disk, Inc. is a retailer for digital video disks. The projected net income for the current year is $1,880,000 based on a sales volume of 240,000 video disks. Detroit Disk has been selling the disks for $23.00 each. The variable costs consist of the $11.00 unit purchase price of the disks and a handling cost of $2.00 per disk. Detroit Disk’s annual fixed costs are $520,000.      Management is planning for the coming year, when it expects that the unit...
Disk City, Inc. is a retailer for digital video disks. The projected net income for the...
Disk City, Inc. is a retailer for digital video disks. The projected net income for the current year is $2,700,000 based on a sales volume of 270,000 video disks. Disk City has been selling the disks for $16 each. The variable costs consist of the $2 unit purchase price of the disks and a handling cost of $2 per disk. Disk City’s annual fixed costs are $540,000. Management is planning for the coming year, when it expects that the unit...
Pharoah Company produces a molded briefcase that is distributed to luggage stores. The following operating data...
Pharoah Company produces a molded briefcase that is distributed to luggage stores. The following operating data for the current year has been accumulated for planning purposes. Sales price $41.17 Variable cost of goods sold 13.17 Variable selling expenses 11.77 Variable administrative expenses 4.17 Annual fixed expenses Overhead $14,040,000 Selling expenses 2,790,000 Administrative expenses 5,850,000 Pharoah can produce 2,700,000 cases a year. The projected net income for the coming year is expected to be $3,240,000. Pharoah is subject to a 40%...
The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.    CANTON CORPORATION...
The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.    CANTON CORPORATION Income Statement for 20X1 Sales $ 236,800 (14,800 units at $16.00) Cost of goods sold 148,000 (14,800 units at $10.00) Gross profit $ 88,800 Selling and administrative expense 11,840 Depreciation 11,600 Operating profit $ 65,360 Taxes (30%) 19,608 Aftertax income $ 45,752      a. Assume in 20X2 the same 14,800-unit volume is maintained but that the sales price increases by 10 percent. Because of...
The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.    CANTON CORPORATION...
The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.    CANTON CORPORATION Income Statement for 20X1 Sales $ 151,200 (11,200 units at $13.50) Cost of goods sold 100,800 (11,200 units at $9.00) Gross profit $ 50,400 Selling and administrative expense 7,560 Depreciation 13,200 Operating profit $ 29,640 Taxes (30%) 8,892 Aftertax income $ 20,748      a. Assume in 20X2 the same 11,200-unit volume is maintained, but that the sales price increases by 10 percent. Because of...
CollegePak Company produced and sold 79,000 backpacks during the year just ended at an average price...
CollegePak Company produced and sold 79,000 backpacks during the year just ended at an average price of $39 per unit. Variable manufacturing costs were $16.50 per unit, and variable marketing costs were $3.78 per unit sold. Fixed costs amounted to $549,000 for manufacturing and $223,200 for marketing. There was no year-end work-in-process inventory. (Ignore income taxes.) Required: Compute CollegePak’s break-even point in sales dollars for the year. (Do not round intermediate calculations. Round your final answer up to the nearest...
Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco,...
Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco, and Office Max. Scholes is concerned about the possible effects of inflation on its operations. Presently, the company sells 96,000 units for $60 per unit. The variable production costs are $30, and fixed costs amount to $1,560,000. Production engineers have advised management that they expect unit labor costs to rise by 20 percent and unit materials costs to rise by 5 percent in the...
Question (d) Only: (a)(b)(c) are given and done Hi-tech Company sells 400 computer hard-disks which cost...
Question (d) Only: (a)(b)(c) are given and done Hi-tech Company sells 400 computer hard-disks which cost data is as follows:                                    Per Unit Selling Price                   $250 Variable costs                 $150 Fixed costs are $35,000 per month. (a) Contribution per unit: Contribution per unit = Selling price per unit - Variable cost per unit = $ 250 - $ 150 = $ 100 (b) breakeven sales in $ value and in units per month. Contribution Margin = (Selling price per unit...
Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco,...
Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco, and Office Max. Scholes is concerned about the possible effects of inflation on its operations. Presently, the company sells 90,000 units for $70 per unit. The variable production costs are $35, and fixed costs amount to $1,500,000. Production engineers have advised management that they expect unit labor costs to rise by 20 percent and unit materials costs to rise by 5 percent in the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT