DVD Now is a direct marketer of popular movies. Following is information about its revenue and...
DVD Now is a direct marketer of popular movies. Following is information about its revenue and cost structure:
Selling Price $13 per dvd
Variable costs:
Production (manufacturing costs) $3.00 per dvd
selling and administration (non manuf. cost). $1.00 per dvd
fixed costs:
Production (manufacturing costs) $1,000,000 per year
Selling and administration ( non-manu. costs). $3,000,000 per year
In which range dos the break-even point fall?
a. between 300,000 and 350,000 units
b. between 350,001 and 400,000 units
c. between 400,001 and 450,000 units
d. between 450,001 and 500,000 units
Homework Answers
Fixed cost = 1000000 + 3000000 = 4000000 = FC
Variable cost = 3+1 = 4$ = VC
Selling price = 13$ = SP
Break even point = ( FC )/ (SP - VC)
Break even point = (4000000)/(13-4)
BEP = (4000000/9) = 444444.44 unit
Break even point is in between = 400001 to 450000 units
Answer: C
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