For this, we must do tasks related to a retail store selling DVDs. This business

Question

For this, we must do tasks related to a retail store selling DVDs. This business is relatively simple with approximately the same contribution margin percentage for all products. 1. Make a list of all fixed costs associated with running the business. Estimate the amount of each fixed cost per month. 2. Make a list of all variable costs associated with running the business. Estimate the amount of each variable cost per unit. 3. Given the fixed and variable costs that have been identified, compute the break-even point for your business in either units or dollar sales. 4. Assess the prospects of your business making a profit.

Explanation / Answer

Let sales be 10000 in units and sale per unit be $35
1. Let Fixed cost:
Administrative fixed overhead= 25000
Sales Overhead= 20000

2.Variable cost per unit :
Direct material= 7
Direct Labour= 10
commission= 10% of sales
Packaging= 0.5

BEP in units=Fixed cost/Contribution per unit
BEP= 45000/14= 3214 units

BEP in sales= Fixed cost /PV ratio
PV ratio= (14/35)*100=40%
BEP in sales=45000/40%= 112500

Sales 35 Less:Variable cost
Direct material -7 Direct labor -10 Commision -3.5 Packaging -0.5 Contribution per unit 14 Contribution total(14*10000) 140000 Less:Fixed cost
Administrative cost 25000 Selling cost 20000 Profit 95000

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