Reference no: EM132800882

Question - Cartel, Inc. is a retailer for digital video disks. The net income for 2020 is $400,000 based on a sales volume of 200,000 video disks. Cartel has been selling the disks for $32 each. The variable costs consist of the $20 unit purchase price of the disks and a handling cost of $4 per disk. Cartel's annual fixed costs are $1,200,000.

Management is planning for 2021, when it expects that the unit purchase price of the video disks will increase 20%. (Ignore income taxes.)

Required -

a) Calculate Cartel's break-even point for 2020 in number of video disks.

b) What will be the company's net income for 2020 if there is a 10% increase in projected unit sales volume?

c) What volume of sales (in dollars) must Cartel achieve in 2021 to maintain the same net income as 2020 (i.e. net income of $400,000) if the unit selling price remains at $32?

d) In order to cover a 20% increase in the disk's purchase price for 2021 and still maintain the current contribution-margin ratio, what selling price per disk must Cartel establish for 2021?