Play It Co. Ltd. is a top selling electronic games producer. Play It is about to release version 5.0 of its game. It divides its customers into two groups: new customers and upgrade customers (those who previously purchased Play It 1-2-3, 4.0 or earlier versions). Although the same physical product is provided to each customer group, sizable differences exist in selling prices and variable marketing costs.

New Customers Upgrade Customers

$ $ $ $

Selling price 210 120

Less Variable costs:

Manufacturing 25 25

Marketing 65 90 15 40

Contribution margin 120 80

The fixed costs of Play It are $1,400,000. The planned sales mix in units is 60% new customers and 40% upgrade customers.

Required:

a) What is the companys breakeven point in units for each category of customer, assuming that the planned 60%:40% sales mix is attained? (10 marks)

b) If the sales mix is attained, what is the operating income when 20,000 units are sold?

(7 marks)

c) how many units in total must be made in order to achieve a 10% profit margin on sales? (8 marks)