Cheetah Scope Technology, located at Colonial Heights, VA, enjoys a 1% share of a total market of 75,000 Class-C filtration units per year (the retail price is $1,800 per unit). Steve Davis, the president, estimates that variable production costs amount to $650 per unit and fixed manufacturing costs total $240,000 per year. In addition, shipping and packaging costs are $80,000 and the annual advertising budget is $100,000. This company employs one sales representative at a salary of $40,000 per year.
1. Use an algebraic procedure to determine the break-even point for Q.
2. Use a graphical procedure to determine the break-even point for Q (i.e., the quantity at which profit is zero).
3. Steve expects to sell 20% more filtration units per year than he does presently by increasing advertising budget from $100,000 to $120,000. Should he raise advertising budget? Why? Show all of your work below