Question - Phoenix-based CompTronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 42,000 speaker sets:
Sales: $4,032,000
Variable costs: 1,008,000
Fixed costs: 2,736,000
Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $21.60 per set; annual fixed costs are anticipated to be $2,380,800. (In the following requirements, ignore income taxes.)
Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States: If fixed costs remain constant, what must management do to the variable cost per unit? By how much must unit variable cost change?