The following cost and revenue information pertains to the new CD: CD package and disc (direct material and labor): $2.50/CD
Songwriters' royalties: $0.70/CD
Recording Artists' royalties: $2.00/CD
Advertising & promotion: $380,000
Sony Records Inc.'s Overhead: $300,000
Selling price to CD Distributor: $10.00

Knowing they had been selling 100,000 CDs, what percent does this change in sales represent?

a. 25.36%
b. 12.43%
c.79.17%
d. 15.63%
e. None of the above

The percentage that's represented by the change is E. None of the above.

Based on the information given, we'll segregate the cost into a fixed and variable cost. This will be:

The break-even point will then be calculated thus:

= Fixed costs/Contribution per unit

= $680,000/$4.8

= 142,000 CDs

The Percentage increase will be:

= (142000 - 100000) / 100000 × 100

= 42000/100000 × 100

= 42%

In conclusion, the correct option is None of the above.

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Cost and Revenue information for the new CD

e. None of the above

Explanation:

a) Data and Calculations:

Variable cost:

Direct material and labor):    $2.50/CD

Songwriters' royalties:          $0.70/CD

Recording Artists' royalties: $2.00/CD

Total variable cost                     $5.20/CD

Selling price to CD Distributor: $10.00/CD

Contribution                               $4.80/CD

Fixed Costs:

Advertising & promotion:           $380,000

Sony Records Inc.'s Overhead: $300,000

Total fixed costs                         $680,000

The break-even point = Fixed costs/Contribution per unit

= $680,000/$4.8 = 142,000 CDs

Knowing they had been selling 100,000 CDs

There is an increase of 42,000 (142,000 - 100,000)

This increase represents a change of 42% = (42,000/100,000 * 100)

The change in sales from 100,000 CDs to 142,000 CDs in order to break-even is a 42% increase.  None of the given options from a to d has the answer.

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