"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."

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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"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."

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