In order to cover a 20 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? 1. Break-even point2. Net income3. Volume of sales4. Selling price per disk36,364 units$ 2,509,500 Disk City, Incorporated, is a retailer for digital video disks. The projected net income for the current year is $2,130,000 based on asales volume of 230,000 video disks. Disk City has been selling the disks for $17 each. The variable costs consist of the $4 unitpurchase price of the disks and a handling cost of $2 per disk. Disk City's annual fixed costs are $400,000.Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 20 percent.(Ignore income taxes.)

Answered: Disk City, Incorporated, is a retailer…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In order to cover a 20 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?

1. Break-even point
2. Net income
3. Volume of sales
4. Selling price per disk
36,364 units
$ 2,509,500

Disk City, Incorporated, is a retailer for digital video disks. The projected net income for the current year is $2,130,000 based on a
sales volume of 230,000 video disks. Disk City has been selling the disks for $17 each. The variable costs consist of the $4 unit
purchase price of the disks and a handling cost of $2 per disk. Disk City's annual fixed costs are $400,000.
Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 20 percent.
(Ignore income taxes.)

Expert Solution

Step 1: CVP analysis :

CVP analysis includes concept of break even point, break even point is the point of sale where there is no profit no loss situation.

Contribution margin is difference between selling price and variable cost.

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