Question: Mike completed a cost-volume-profit analysis for Bill's Company for the next year. Mike notes the decrease in volumes and prepares the breakeven analysis and computes the margin of safety; he notes that the margin of safety will be positive for the period. However, the company will not achieve the sales volume required to achieve its desired level of operating and net income. The degree of operating leverage is high. You have been tasked with suggesting some cost savings.
- Identify whether you should reduce variable or fixed costs.
- What will be the impact on the company in the future?
- What suggestion you will give to company for cost savings.