DISCOPRESS Case Study

Break-Even Analysis

Could the program be profitable on an operating basis at her standard prices? Would the increased demand from FFE justify the $10,000 capital expenditure? Pace knew FFE would utilize the MOD capability only if it were cheaper than the the mass-production option. Pace wondered for which of the titles FFE would pay the per-unit premium for MOD, and for which titles FFE would prefer either to pay the higher up-front costs for mass-production or to reject consideration entirely. It seemed to Pace that the relevant costs that FFE would consider would be the inventory holding costs and the unit costs for each title. Would the MOD volume be enough to justify a $10,000 expenditure? How long would it take for Discopress to breakeven on this investment?

Representative Product Data

Exhibit 1

Category	Number of titles	average annual sales	Years until expiration
A	4	396	1
B	5	84	3
C	9	48	5
D	10	24	6
E	19	12	10
F	28	60	2
G	36	24	4
H	49	12	7
I	80	6	8

Category A has four individual titles, each with average annual sales of 396 units. The contract of each title will expire in one year. Total demand for each title will be 396 units. Category I has 80 individual titles, each with average annual sales of 6 units. The contract of each title would expire after eight years, thus total demand for each title will be 48 units.