Problem: Assume the following:
Sales of 5000 units per month
Price of $12.50 per unit
Revenue of $62,500
Variable Cost of $6.00 per unit
Fixed Costs of $15,000
In all parts, show your formulas and work.
Part A: Explain what happens with a 5% price increase to revenue, variable costs, contribution to margin, fixed costs and the wholesale price assuming sales stay constant. State your answer in $.
Part B: What is the breakeven sales change in units and dollars with a 5% price increase? Explain the effect on profitability at, above and below the breakeven sales change.
Part C: What is the breakeven sales change, in units, for an increase in variable costs equal to $.22 with a 5% price increase? Explain the effect on profitability at, above and below the breakeven sales change.
Part D: What is the breakeven sales change, in units, for a fixed cost increase of $1,000 each month with a 5% price increase? Explain the effect on profitability at, above and below the breakeven sales change.