Jim Jasons is considering starting a company to manufacture high-performance video game computers. He likes to play video games. He sees this as an opportunity to become his own boss and earn a living doing what he loves most. Jim paid $1,000 for the training and bought new equipment to assemble the computers, which already costs $10,000. He estimates that building each computer will cost $750 in materials (case, monitor, keyboard, graphics card, CPU, etc.). If he decides to build computers full-time, he will need to rent office and production space for an estimated $1,200 per month, and will have to pay an additional $300 per month for various utility bills. Jim was going to do all the production and run the office and was willing to pay him a salary of $5,000 a month. Jim, 1 each per month. He plans to hire two salespeople with a base salary of $500 plus a commission of $100 per computer. Jim plans to sell each computer for $1,500. It believes it could sell 50 computers for Christmas in December, but isn't sure what the sales will be for the rest of the year. However, computers are sure to be popular because many of their friends play video games. In general, he is confident that he can pay all his operating expenses, pay his salary of $5,000 per month, and earn at least $2,000 more than that per month. (Ignore income taxes.) Computers are sure to be popular because many of their friends play video games. In general, he is confident that he can pay all his operating expenses, pay his salary of $5,000 per month, and earn at least $2,000 more than that per month. (Ignore income taxes.) Computers are sure to be popular because many of their friends play video games. In general, he is confident that he can pay all his operating expenses, pay his salary of $5,000 per month, and earn at least $2,000 more than that per month. (Ignore income taxes.)

The following questions will help you analyze information about this issue. Use Excel for all calculations and Microsoft Word for the written part. A team member will post a file on Canvas. You will be graded for accuracy and organization.

Preform analyzes to estimate the number of computers A. Jim's business will need to manufacture and sell each year to be financially successful:

1. List all identified costs and indicate whether each cost is (a) a relevant fixed cost, (b) a relevant variable cost, or (c) NOT relevant to Jim's decision.

2. Calculate the contribution margin and contribution margin rate per unit.

3. Write the total cost function for computers and calculate the annual breakeven point in units and revenue.

4. How many computers does Jim need to sell per year to earn $2,000 more per month than his salary?

B. Identify uncertainties associated with CVP calculations:

1. Explain why Jim is unsure whether his actual costs will be the same as his estimated dollar amounts. In your description, describe as many business risks as possible. (Hint: For each of the costs Jim didn't identify for his job, consider why the annual cost might be different from what he estimated.)

2. Identify possible costs that Jim has not identified for his job. List as many types of additional costs as possible.

3. Explain why Jim cannot know for certain how many computers he will sell each year. Identify as many risks as possible in your statement.

C. Discuss whether Jim would be biased in his revenue and cost estimates.

D. Explain how business risk and Jim's potential biases might affect the interpretation of break-even analysis results.

E. Let's say Jim asks you for advice. Use the information you learned from previous analysis to write a note to Jim with your suggestions.

Answer rating: 100% (QA)

A Preforming analysis to estimate the number of computers Jims business will need to manufacture and sell each year to be financially successful 1 List of identified costs and their relevance Training ... View the full answer