Value 1000 Points Disk City Inc Is A Retailer For Digital Vi

Value 1000 Pointsdisk City Inc Is A Retailer For Digital Video

Calculate disk city’s break-even point for the current year in number of video disks. (Round your answer to the nearest whole number.)

What will be the company’s net income for the current year if there is a 15 percent increase in projected unit sales volume? (Omit the "$" sign in your response.)

What volume of sales (in dollars) must Disk City achieve in the coming year to maintain the same net income as projected for the current year if the unit selling price remains at $19? (Do not round intermediate calculations and round your final answer to 2 decimal places. Omit the "$" sign in your response.)

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? (Do not round intermediate calculations and round your final answer to 2 decimal places. Omit the "$" sign in your response.)

Paper For Above instruction

Introduction

Analyzing the financial performance and planning for future profitability is essential for retail companies such as Disk City Inc., which specializes in digital video disks. This paper explores key financial metrics including the break-even point, projected net income considering sales volume changes, sales volume needed to sustain current net income amidst pricing adjustments, and the necessary pricing strategies to offset increased costs while maintaining profitability. Additionally, the paper examines similar financial considerations for Corrigan Enterprises and Advanced Electronics, emphasizing the importance of cost management, strategic pricing, and operational adjustments in the context of competitive retail and manufacturing environments.

Calculation of Current Year’s Break-Even Point

Disk City’s current break-even point is determined by analyzing fixed and variable costs relative to sales price. The fixed costs are $440,000 annually. The variable cost per disk comprises the purchase price of $5 and handling costs of $2, totaling $7 per disk. The unit selling price is $19. To find the contribution margin per unit:

Contribution margin per disk = Selling price - Variable costs = $19 - $7 = $12.

Applying the break-even formula: Break-even units = Fixed costs / Contribution margin per unit:

Break-even units = $440,000 / $12 ≈ 36,667 disks.

This indicates that Disk City must sell approximately 36,667 disks in the current year to cover all fixed and variable costs.

Projected Net Income with a 15% Increase in Unit Sales

The current sales volume is 230,000 disks, and an increase of 15% would result in:

New sales volume = 230,000 * 1.15 = 264,500 disks.

The additional units sold contribute a profit margin of $12 per disk, so the incremental contribution margin is:

Incremental contribution = (264,500 - 230,000) $12 = 34,500 $12 = $414,000.

Adding this to the current net income ($2,320,000), the projected net income becomes:

Net income = $2,320,000 + $414,000 = $2,734,000.

Sales Volume in Dollars to Maintain Current Net Income

To sustain a net income of $2,320,000 with the current contribution margin ratio, we need to determine the required sales revenue:

Contribution margin ratio = Contribution per unit / Selling price = $12 / $19 ≈ 0.6316.

Required sales to generate current net income:

Sales = (Fixed costs + Net income) / Contribution margin ratio = ($440,000 + $2,320,000) / 0.6316 ≈ $2,760,000 / 0.6316 ≈ $4,368,953.49.

Rounded to two decimal places, Disk City must achieve approximately $4,368,953.49 in sales to maintain the current net income.

Pricing Strategy to Offset Cost Increase

If the purchase price of disks increases by 30%, the new variable cost per disk becomes:

New purchase price = $5 * 1.30 = $6.50. Total variable cost per disk = $6.50 + $2 = $8.50.

The new contribution margin per unit at current selling price ($19):

Contribution margin = $19 - $8.50 = $10.50.

To maintain the same contribution margin ratio (0.6316), the new selling price should satisfy:

Selling price / Selling price - variable cost = 1 / 0.6316.

Alternatively, setting the ratio:

Contribution margin ratio = Contribution per unit / Selling price = 0.6316, so:

Contribution per unit = 0.6316 * Selling price.

Since contribution per unit = Selling price - variable cost, then:

Selling price - $8.50 = 0.6316 * Selling price,

Selling price - 0.6316 * Selling price = $8.50,

Selling price (1 - 0.6316) * Selling price = $8.50,

0.3684 * Selling price = $8.50,

Selling price ≈ $8.50 / 0.3684 ≈ $23.08.

Thus, Disk City should set the new selling price at approximately $23.08 to cover increased costs while maintaining the contribution-margin ratio.

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