Kirkland Video Games Inc. is developing a new video game. It is the most sophisticated game on 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. Fixed costs amount to $450,000. 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.

Calculate break-even point and sales required to earn target operating income in dollars.

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.