Question: A firm sells a product for $30.50 each and the unit variable cost is $12.20. The fixed costs are $750,000.
Required:
1) the break even in units and dollars.
2) Assume the firm sold 50,000 units last year- present a contribution format income statement for that level of activity.
3) If the owners wanted income of $250,000, how many units would have to be sold?
4) At the 50,000 unit of activity what is the operating leverage and what is the margin of safety in units and dollars?
5) The sales manager proposed to cut the sales price by $1, spend an additional $65,000 on fixed advertising, and achieve a sales increase of 8,000 units above the 50,000 level of last year. Should the firm make these changes?
6) The production manager proposed to invest in new capital equipment that would result in added depreciation of $75,000 per year. The variable costs would drop by $2 per unit.
Should the firm adopt this proposal; what is the new break even dollars in this case?