Main Street Inc. is a retailer of DVD’s – Cost-Volume-Profit

Main Street Inc. is a retailer of DVD’s.  The projected net income for the current year, 2021, is $600,000 based on sales volume of 400,000 DVD’s.  Main Street Inc. has been selling DVD’s for $24 each. Main Street Inc.’s cost structure is as follows:

Variable costs:

• $15 per unit purchase price for each DVD
• $3 per unit handling cost for each DVD.

Fixed costs:

• $1,800,000 annually

Management is planning for the coming year 2022, when it expects that the unit purchase price for each DVD will increase 30% (ignore income taxes).

Required:

1. Compute Main Street Inc.’s break-even point in units for the current year, 2021.
2. What will be the company’s net income for the current year, 2021, if there is a 10% increase in projected unit sales volume?
3. What volume of sales in dollars must Main Street Inc. achieve in 2022 to maintain the same net income as projected in the current year, 2021, if the unit-selling price remains at $24, but the unit purchase price of each DVD increases by 30% as expected?
4. In order to cover a 30% increase in the DVD’s purchase price for 2022 and still maintain the same contribution-margin ratio, what selling price per DVD must Main Street Inc., establish for 2022?