Question

Sarah is the marketing manager for Utter Mayhem, the hottest new game among teenage gamers. In order to get her bonus she has to sell a lot of games in the Christmas launch, as Utter Mayhem was a bit pricy to make. She has the following information.

FC = $1,200,000
Price = $55
Unit variable cost = $28

If Breakeven Even Volume (BEV) = fixed costs / (price-variable cost) then how many games does Sarah need to sell to make a profit of $500,000.

Make sure you pay attention to the PROFIT Sarah wants to make.

Answer 1

Given that,

Fixed Cost = $1,200,000

Price = $55

Unit Variable cost = $28 => Total variable cost = $28 x Quantity

Let the quantity of games to be sold to make $500,000 profit be 'Q'

Total Revenue = Price x Quantity = $55Q

Total Cost = Fixed Cost + Total Variable Cost = $1,200,000 + $28Q

Profit = $55Q - ($1,200,000 + $28Q)

=> 500,000 = 55Q-1,200,000-28Q

=> 500,000 = 27Q - 1,200,000

=> Q = (500,000+1,200,000)/27 = 62,962.96 = 62,963 units (approx)

Number of games Sarah needs to sell to make a profit of $500,000 = 62,963