Pinnacle is a music distribution company which buys CDs from record companies to distribute to retailers. All of its CDs are purchased for £3.65 with postage and packaging amounting to 35p per CD. The CDs are then sold on at £7 each. The company has fixed costs of £30,000 per year. (Hint, use a scale of 10,000 per big square on y axis and 2,000 per big square on the x axis).
a) Produce a breakeven chart for Pinnacle.

b) As a result of increased pressure from illegal music downloads the average retail price of a CD has fallen. Pinnacle must now sell their CDs at £6.50. Display this change on your breakeven chart by drawing a 2nd line for revenue. The unit variable cost has not changed.

c) Explain the change in breakeven as a result of the fall in selling price.

d) Discuss - What other factors may influence the breakeven point for Pinnacle.

e) Calculate the margin of safety at the original price of £7, if the company sells 12,000 CD's