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Cost-Volume-Profit Analysis – Jim’s Computers Jim Jasons is thinking about starting a company to produce high...

Cost-Volume-Profit Analysis – Jim’s Computers Jim Jasons is thinking about starting a company to produce high performance video gaming computers. He loves playing video games. He sees it as an opportunity to be his own boss, making a living doing what he likes best. Jim paid $1,000 for training, and he has already purchased new equipment costing $10,000 to assemble the computers. He estimates that it will cost $750 in materials (case, monitor, keyboard, graphics card, CPU, etc.) to make each computer. If he decides to make computers full time, he will need to rent office and manufacturing space at an estimated $1,200 per month for rent plus another $300 per month for various utility bills. Jim would perform all the manufacturing and run the office, and he would like to pay himself a salary of $5,000 per month. Jim plans to hire two salespeople at a base salary of $1,500 each per month plus a commission of $100 per computer. Jim plans to sell each computer for $1,500. He believes that he can sell 50 computers in December for Christmas, but he is not sure what the sales will be during the rest of the year. However, he is sure that the computers will be popular because so many of his friends play video games. Overall, he is confident that he can pay all his business costs, pay himself, the monthly salary of $5,000 and earn at least $2,000 more than that per month. (Ignore income taxes.)

The following questions will help you analyze the information for this problem. Use Excel for all calculations and Microsoft Word for the written portion. One team member will submit one file in Canvas. You will be graded on accuracy and organization.

A. Preform analyses to estimate the number of computers Jim would need to manufacture and sell each year for his business to be financially successful:

1. List all the costs described and indicate whether each cost is (a) a relevant fixed cost, (b) a relevant variable cost, or (c) NOT relevant to Jim’s decision.

2. Calculate the contribution margin per unit and the contribution margin ratio.

3. Write down the total cost function for the computers and calculate the annual breakeven point in units and in revenues.

4. How many computers would Jim need to sell annually to earn $2,000 per month more than his salary?

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ekkarill92 answered 1 year ago
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