Question

Breakeven analysis   Barry Carter is considering opening a​ used-book store. He wants to estimate the number of books he must sell to break even. The books will be sold for $ 13.81 ​each, variable operating costs are $ 10.09 per​ book, and annual fixed operating costs are $ 72 comma 600. a. Find the operating breakeven point in number of books. b. Calculate the total operating costs at the breakeven volume found in part ​(a​). c. If Barry estimates that at a minimum he can sell 2 comma 000 books per​ month, should he go into the​ business? d. How much EBIT will Barry realize if he sells the minimum 2 comma 000 books per month noted in part ​(c​)?

a. The operating breakeven point is nothing units. ​ (Round to the nearest​ integer.)

Answer 1

a). Break-even in units = Fixed cost/(Selling price per unit-Variable costs per unit)

= 72,600/(13.81-10.09)

= 19,516 units

b). Total operating costs = Variable costs + Fixed costs

= 19,516*10.09 + 72,600

= $269,516

c). If Barry estimates to sell 2,000 books per month, i.e, (12*2000)24000 books annually, he should enter into business because the number of units are greater than the break-even units, which will generate profit for the company.

d). EBIT = Total sales - Total operating costs

= (24,000*13.81) - (24,000*10.09 + 72,600)

= $16680