FIN 419 Week 5 Individual Assignment; Assignments from the Readings

FIN 419 Week 5 Individual Assignment; Assignments from the Readings

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Running head: WEEK 5-ASSIGNMENTS FROM THE READINGS 1 Week 5-Assignments from the Readings FIN/419 Date: July 24, 2010 Name……………………

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Running head: ASSIGNMENTS FROM THE READINGS 2 Week 5-Assignments from the Readings Chapter 12: Problem 12.4 Barry Carter is considering opening a music store. He wants to estimate the number of CDs he must sell to break even. The CDs will be sold for \$13.98 each, variable operating costs are \$10.48 per CD, and annual fixed operating costs are \$73,500. a. Find the operating breakeven point in number of CDs. According to Gitman (2006), . We must find sales quantity in units (Q). We are given fixed operating costs (FC) of \$73,500, sales price per unit (P) of \$13.98, and variable operating cost per unit (VC) of \$10.48; therefore we have: The operating breakeven point in number of CDs is 21,000 CDs. b. Calculate the total operating costs at the breakeven volume found in part a. To find the total operating costs at the breakeven volume of 21,000 CDs we must use . Again, we know fixed operating costs (FC) are \$73,500, we now know quantity (Q) is 21,000 CDs, and variable costs are \$10.48; therefore we have: c. If Barry estimates that at a minimum he can sell 2,000 CDs per month, should he go into the music business? Yes. Since 2,000 CDs per month equals 24,000 CDs and the breakeven volume is 21,000 CDs, Barry will exceed the breakeven point by 3,000 CDs.
ASSIGNMENTS FROM THE READINGS 3 d. How much EBIT will Barry realize if he sells the minimum 2,000 CDs per month noted in part c? To find the EBIT Barry will realize if he sells the minimum 2,000 CDs per month, we

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FIN 419 Week 5 Individual Assignment; Assignments from the Readings

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