Question

At the beginning of January, Kesia Records paid $148,950 to acquire the exclusive rights to a new album. It costs them $1.13 to print a copy of this album, which they can sell for $9.75. The following chart shows the sales of that record, along with the overhead expenses of running a record studio, not counting production costs.

Month
Albums Sold
Expenses
Jan.
5,486
$27,714
Feb.
8,191
$21,689
Mar.
4,796
$25,195
Apr.
7,490
$28,766
May
6,272
$24,604
Jun.
5,131
$29,040

In whch month did Kesia Records first break even?
a.
January
b.
March
c.
April
d.
May


Please select the best answer from the choices provided

A
B
C
D
Mark this and return

Answer 1

D — May.

Reason: contribution margin per album = 9.75 − 1.13 = $8.62.
Monthly net = 8.62×(albums sold) − monthly expenses. Cumulative net after each month:
- Jan: 8.62·5,486 − 27,714 = 19,575.32 (cumulative −129,374.68 after initial $148,950)
- Feb: +48,917.42 → cumulative −80,457.26
- Mar: +16,146.52 → cumulative −64,310.74
- Apr: +35,797.80 → cumulative −28,512.94
- May: +29,460.64 → cumulative +947.70

The cumulative amount turns positive in May, so break-even is reached in May.