"Disk City, Inc., is a retailer for digital video disks. The projected net income for the current year is $200,000 based on a sales volume of 200,000 video disks. Disk City has been selling the disks for $16 each. The variable costs consist of the $10 unit purchase price of the disks and a handling cost of $2 per disk. Disk City’s annual fixed costs are $600,000. Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 30 percent. (Ignore income taxes.). Selling Price per disk $16 Variable cost per disk=Purchase + Handling Cost per disk 10+2 Variable Cost per disk $12 Contribution/ per disk= Selling price+Variable Cost/per disk Contribution Margin per disk 16-12 Contribution Margin per disk $4 Fixed Costs $600,000 Break even point in number of disks=Fixed costs/Contribution Margin 600,000/4 Break-Even point in number of disks for the current year 150,000 Sales Volume 200,000 Contribution Margin per disk 4 Fixed costs 600,000 Net Income 200,000 Increase in Sales volume 10% Projected Net Income = $880,000 Current Year: Selling Price per disk = $16 16 Variable Cost per disk 12 Coming Year Increase purchase/disk ($10 x 30%) $3 Variable cost (12.00 + 3) $15 Selling Price/ Disk $16 Required Sales in dollar = $12,800,00 1.In order to cover a 30 percent increase in the disk’s purchase price for the coming year and still maintain the current contribution-margin ratio, what selling price per disk must Disk City establish for the coming year? 2.Build a spreadsheet: Construct an Excel spreadsheet to solve requirements 1, 2, and 3 above. Show how the solution will change if the following information changes: the selling price is $17, and the annual fixed costs are $640,000."
"Disk City, Inc., is a retailer for digital video disks. The projected net income for the current year is $200,000 based on a sales volume of 200,000 video disks. Disk City has been selling the disks for $16 each. The variable costs consist of the $10 unit purchase price of the disks and a handling cost of $2 per disk. Disk City’s annual fixed costs are $600,000. Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 30 percent. (Ignore income taxes.).
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Selling Price per disk |
$16 |
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Variable cost per disk=Purchase + Handling Cost per disk |
10+2 |
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Variable Cost per disk |
$12 |
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Contribution/ per disk= Selling price+Variable Cost/per disk |
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Contribution Margin per disk |
16-12 |
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Contribution Margin per disk |
$4 |
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Fixed Costs |
$600,000 |
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Break even point in number of disks=Fixed costs/Contribution Margin |
600,000/4 |
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Break-Even point in number of disks for the current year |
150,000 |
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Sales Volume |
200,000 |
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Contribution Margin per disk |
4 |
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Fixed costs |
600,000 |
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Net Income |
200,000 |
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Increase in Sales volume |
10% |
Projected Net Income = $880,000
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Current Year: |
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Selling Price per disk = $16 |
16 |
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Variable Cost per disk |
12 |
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Coming Year |
|
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Increase purchase/disk ($10 x 30%) |
$3 |
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Variable cost (12.00 + 3) |
$15 |
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Selling Price/ Disk |
$16 |
Required Sales in dollar = $12,800,00
1.In order to cover a 30 percent increase in the disk’s purchase price for the coming year and still maintain the current contribution-margin ratio, what selling price per disk must Disk City establish for the coming year?
2.Build a spreadsheet: Construct an Excel spreadsheet to solve requirements 1, 2, and 3 above. Show how the solution will change if the following information changes: the selling price is $17, and the annual fixed costs are $640,000."
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