Answer and Explanation:
The computation is shown below:
a. The operating break even point in number of CD is
= Fixed operating cost ÷ (Selling price per unit - variable operating cost)
= $73,500 ÷ ($13.98 - $10.48)
= 21,000 CDs
b. Now the total operating cost is
= Fixed cost + Quantity × variable cost per unit
= $73,500 + 21,000 CDs × $10.48
= $293,580
c. If he can sell 2,000 CDs per month than annual sale is 24,000 CDs and the break even is exceeded than 3,000 CDs by taking a difference of 24,000 CDs and 21,000 CDs . So, it should go to the CD business
d. Now the EBIT is
= (Selling price × Quantity) - Fixed cost - (Variable price × Quantity)
= ($13.98 × 24,000) - $73,500 - ($10.48 × 24,000)
= $335,520 - $73,500 - $251,520
= $10,500
We simply applied the above formulas
