Problem:
Phonetronix is a small manufacturer of telephone and communications devices. Recently, company management decided to investigate the profitability of cellular phone production. They have three different proposals to evaluate. Under all the proposals, the fixed costs for the new phone would be $110,000. Under proposal A, the selling price of the new phone would be $99 and the variable cost per unit would be $55. Under proposal B, the selling price of the phone would be $129 and the variable cost would remain the same.Under proposal C, the selling price would be $99 and the variable cost would be $49.
When you have completed your spreadsheet, answer the following questions:
Question 1. What are the break-even points in units and dollars under proposal A?
Question 2. How did the increased selling price under proposal B impact the break-even points in units and dollars compared to the break-even points calculated under proposal A?
Question 3. Why did the change in variable cost under proposal C not impact the break-even points in units and dollars as significantly as proposal B did?