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 $14.49 each, variable operating costs are $10.22 per book, and annual fixed operating costs are $73,900. 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 2,080 books per month, should he go into the business? d. How much EBIT will Barry realize if he sells the minimum 2,080 books per month noted in part (c)?

Answer 1

a. Operating Break-even point

$Operating Break even (in units) = \frac{Fixed Cost}{Contribution per unit}$

$Operating Break even (in units) = \frac{\$73900}{\$4.27}$

$Operating Break even (in units) = 17307 Books (Approx.)$

b. Total operating cost at break-even volume found in part (a)

Fixed operating Cost	$73,900
Variable operating cost (17307*$10.22)	$176,878
Total Operating cost	$250,778

c. Minimum he can sell 2080 books per month

Sales Value	$361,670
Less: Variable operating cost	$255,091
Contribution	$106,579
Less: Fixed operating Cost	$73,900
Profit/(loss)	$32,679

Since company is earning profit on sale of 2080 books per month or annually 24960 Books therefore he should go into the business.

d)How much EBIT Barry realize if he sells minimum 2080 books per month

Sales Value	$361,670
Less: Variable operating cost	$255,091
Contribution	$106,579
Less: Fixed operating Cost	$73,900
EBIT	$32,679

So Barry will realize EBIT $32679 he sells minimum 2080 books per month or annually 24960 Books.

I hope this clear your doubt.

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