Question 2 Problem 7-34 Basic CVP Relationships

Disk City, Inc. is a retailer for digital video disks. The projected net income for the current year is $1,960,000 based on a sales volume of 210,000 video disks. Disk City has been selling the disks for $23 each. The variable costs consist of the $9 unit purchase price of the disks and a handling cost of $2 per disk. Disk City’s annual fixed costs are $560,000. Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 20 percent. (Ignore income taxes.)