Martin Corporation sells component parts for the electronics industry. Martin Corporation currently sells 160,000 units per year at a price of $6.50 per unit; its variable cost is $4.00 per unit; and fixed costs are $350,000 for the year. Martin is considering expanding into two additional states, which would increase its fixed costs to $570,000 and would increase its variable unit cost to an average of $4.24 per unit. If Martin expands, it expects to sell 250,000 units at $7.10 per unit.
1. How much operating profit (EBIT) is Martin Corporation currently realizing, with a sales volume of 160,000 units per year?
a. What is Martin Corporation’s current breakeven point in terms of:
1. Quantity:
2. Sales Dollars:
2. How much operating profit (EBIT) would Martin Corporation realize under the expansion proposal?
a. What would be Martin’s new breakeven point in terms of:
1. Quantity:
2. Sales dollars:
3. Based on the above analysis, what recommendation would you make to Martin Corporation with regard to their proposed expansion plan?