A product at the Wagon company enjoyed reasonable sales volume, but its contributions to profits were disappointing. Last year; 17,500 units were produced and sold. The selling price is $22 per unit, variable cost per unit is $18, and Fixed cost is $80,000.
Required
- What is the break-even quantity for this product? Use both graphic and algebraic approaches to get your answer.
- Wagon is considering ways to either stimulate sales volumes or decrease variable costs. Management believes that sales can be increased by 30% or that Variable cost can be reduced to 85% of its current level. Which alternative leads to higher contributions to profits, assuming that each is equally costly to implement? (hint: Calculate profits for both alternatives and identify the one having the greatest profits).
- What is the percent change in the per-unit profit contribution generated by each alternative in part (b)