Problem:
Trimble Company sells an electronic toy for $40. The variable cost is $24 per unit and the fixed cost is $32,000 per year. Management is considering the following changes:
Alternative 1:
Lease a new packaging machine for $4,000 per year, which will reduce variable cost by $1 per unit.
Alternative 2:
Increase selling price 10 percent to counteract an expected 25 percent increase in fixed cost.
Alternative 3:
Reduce fixed cost by 25 percent by moving to a lower rent location. This would have the effect of increasing variable costs by 10 percent.
Required:
Answer each of the following questions independently, showing your calculations. Also, provide a few sentences explaining your answers:
Determine the current break-even point in units and dollars.
Determine the expected profit assuming alternative 1 and sales of 3,200 units.
Determine the break-even point in units and dollars assuming alternative 2.
Determine the break-even point required in units and dollars assuming alternative 3.
Determine the volume of sales required to earn $23,600 assuming alternative 3.