Question

Barry Carter is considering opening a​ used-book store. He wants to estimate the number of books he must sell to break even. The books will be sold for $ 13.96 ​each, variable operating costs are $ 10.06 per​ book, and annual fixed operating costs are $ 72 comma 600. a. Find the operating breakeven point in number of books. b. Calculate the total operating costs at the breakeven volume found in part ​(a​). c. If Barry estimates that at a minimum he can sell 2 comma 040 books per​ month, should he go into the​ business

Answer 1

Answer:

a. Operating Break even Point = 18,616 units

b. Operating costs at break even = $259,877

c. If he sells 2,040 only then there will be loss as break even point is much higher therefore, he should not sell at this level.

Explanation:

Provided

Selling Price per unit = $13.96

Variable Cost per unit = $10.06

Contribution Per Unit = $13.96 - $10.06 = $3.90

Fixed Cost = $72,600

a. Operating Break even Point = $\frac{Fixed \:Cost}{Contribution \: Per \: Unit}$ = $\frac{72,600}{3.90} = 18,615.38$

Since units can not be in fraction therefore Break Even Units = 18,616

b. Operating costs at break even = Variable + Fixed

Variable = $10.06 $\times$ 18,616 = $187,276.96 i.e = $187,277

Fixed = $72,600

Total Operating Cost = $187,277 + $72,600 = $259,877

c. If he sells 2,040 only then there will be loss as break even point is much higher therefore, he should not sell at this level.