Calculate break-even point and sales required to earn target operating income in dollars. E6.20 (LO 2, 3) Kirkland Video Games Ltd. is developing a new video game. It is the most sophisticated game on the market. It sells the video game for $250 per copy. Variable costs to produce and sell the video game amount to $50 per copy. Fixed costs amount to $450,000. The company anticipates selling 300 copies of the game per month. The company's policy is to stop producing the video game as soon as a competitor comes out with a more sophisticated version.
Calculate break-even point and sales required to earn target operating income in dollars. E6.20 (LO 2, 3) Kirkland Video Games Ltd. is developing a new video game. It is the most sophisticated game on the market. It sells the video game for $250 per copy. Variable costs to produce and sell the video game amount to $50 per copy. Fixed costs amount to $450,000. The company anticipates selling 300 copies of the game per month. The company's policy is to stop producing the video game as soon as a competitor comes out with a more sophisticated version.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Calculate break-even point and sales required to earn target operating income in
dollars.
E6.20 (LO 2, 3) Kirkland Video Games Ltd. is developing a new video game. It is the
most sophisticated game on the market. It sells the video game for $250 per copy.
Variable costs to produce and sell the video game amount to $50 per copy. Fixed costs
amount to $450,000. The company anticipates selling 300 copies of the game per
month. The company's policy is to stop producing the video game as soon as a
competitor comes out with a more sophisticated version.
Instructions
a. Calculate the amount of operating income the company will earn if it takes 10
months for a competitor to produce a more sophisticated version of the video
game.
b. Calculate how many units of the video game the company will have to sell in order
to break even.
c. If the company wishes to earn $30,000 over the product's life, calculate the selling
price of the video game if a competitor introduces a more sophisticated version of
the video game in six months. Assume that unit sales are 300 copies per month.
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