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 $13.83 each, variable operating costs are 59 83 per book, and annual fixed operating costs are 573,200 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 2010 books per month, should he go into the business? d. How much EBIT wil Barry realize if he sells the minimum 2.010 books per month noted in part (c)? a. The operating breakeven point is units. (Round to the nearest integer.) Enter your answer in the answer box and then click Check Answer 4 parts Clear All Check Answer remaining

Answer 1

There are two costs in the business

1. Fixed Cost $ 73,200

2. Variable Cost $9.83

and

Income earned is $13.83 per Book

As we know that the Break Even is achieved when there is no profit or loss so We can say that when x number of books are sold at $13.83 per book and the total expense in selling all this x books is equal then the Break Even is achieved.

Lets put this in formula:

73200 + 9.83X = 13.83X

4X = 73200

X = 18,300

b. The Total Operating Cost is 73200 + 9.83*(18300) = $253,089

c. As he can sell 2010 books per month he will be able to sell total 2010 * 12 = 24120 books in one year.

As the number of units is higher than the Break even units then the venture would be profitable and he should do the business.

d. If he sells 2010 books per month then the EBIT for year would be

Revenue = 13.83 * 24120 = 3,33,579.6

Fixed Cost = - 73200

Variable Cost = 9.83 * 24120 = -2,37,099.6

EBIT = Revenue-Fixed Cost-Variable Cost = 333579.6-73200-237099.6 = 23,280