Problem: Rodney Rogers, a recent business school graduate, plans to open a wholesale dairy products firm. The business will be completely financed with equity. Rogers expects first year sales to total $5,500,000. He desires to earn a target pretax profit of $1,000,000 during his first year of operation. Variable costs are 40 percent of sales.
1) How large can Rogers' fixed operating costs be if he is to meet his profit target?
2) What is Rogers' breakeven level of sales at the level of fixed operating costs determined in (a)?