The income statement for Menage Industries for 2011 is as follows.
Menage Industries IncomeStatementfor YearEnded31 December2011
Sales revenue (200 000 units) $2000000
Cost ofgoods sold 1200000
Gross profit 800000
Less expenses
Marketing and distribution $460000
Administration 440000
900000
Profit (loss) $(100000)
All ofthe costs ofgoods sold are variable, 50 pereent ofthe marketing and distribution costs are variable, and 40 percent ofthe administration costs are variable.
REQUIRED
a. Calculate the number ofunits required tobreak even. The finance manager has devised a number ofalternative plans to get the entity back into profitability. One ofthe plans relates to switching to a more reliable supplier ofraw materials, which will increase the cost ofsales per unit by$0.80.
b. A change in marketing strategy will see variable marketing and distribution costs increase by$0.10, and fixed marketing and distribution costs decrease by$60 000. Competitive forces would allow anincreasc in the selling price ofonly $0.50per unit. On the infonnation available, ",'wouldyou advise switching tothis alternative plan?