Problem - Calculate break-even point and sales required to earn target operating income in dollars.
Kirkland Video Games Inc has spent $450,000 to develop a new video game. It is the most sophisticated game in 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. 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 of the video game.
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.