ServerSolutions

(TCO C) ServerSolutions’ management has asked you to help the firm identify its EBDAT breakeven level. The company has only one product,

the Pinnacle Server, a blazing fast network server that accelerates corporate database network access. The firm’s servers sell for $4,500 each. Each server costs $3,000 in materials and manufacturing costs (all production is outsourced to an external manufacturer).

The firm’s office lease in Puget Sound is $210,000 annually, its magazine advertising expense is $390,000 per year, and compensation costs are $300,000 annually. Complete the following, and show all your calculations for each.

Part 1: Calculate the firm’s

a) EBDAT revenue, and b) contribution profit margin at EBDAT breakeven.

Part 2: If the firm sells 1,800 servers, what will be its c) gross profit percentage, d) operating income, and e) operating income percentage? (Show all calculations) (Points : 40)