Question: Breakeven point; profit; cost function
Annalise Industries has provided the following information with respect to its current year's activities:
|
Product A
|
Product B
|
Product C
|
Product D
|
|
Sales mix (200 000 units)
|
50,000
|
30,000
|
100,000
|
20,000
|
|
Selling price
|
$10
|
$15
|
$8
|
$25
|
|
Variable cost/unit
|
$6
|
$10
|
$6
|
$15
|
|
Total fixed costs = $450,000
|
|
|
|
|
Required: (a) Calculate the breakeven point in total units and units per product based on the data.
(b) Calculate the profit (loss) achieved in the current year.
(c) Management is concerned about increasing competition for some of its products, and wants to increase its sales of product D relative to product C. The initiative would increase annual fixed costs by $50 000 and alter the sales mix to 25 per cent (product A), 15 per cent (product B), 40 per cent (product C) and 20 per cent (product D). On the available data, would you recommend the initiative?