Problem 1: Bradford Products has the following product information available:
Sales price $25.00 per unit
Variable costs $15.00 per unit
Fixed Costs (total) $50,000
Required: Answer each of the following independent questions.
A. What is the contribution margin per unit?
B. What is the contribution margin ratio?
C. How many units must be sold in order to break-even?
D. How many units must be sold in order to earn a target profit of $400,000? (ignore taxes)
E. Bradford is considered an advertising campaign that has a cost of $70,000. The marketing department estimates that the campaign will increase sales by $250,000. Should the company have the advertising campaign? Why or why not? Show your calculations.
Problem 2:
For each of the following statements, fill in the blank with either the word increase, decrease, or stay the same.
a. All else being equal, as the sales price per unit increases, the contribution margin per unit will _________________.
b. All else being equal, as variable costs per unit increase, the contribution margin per unit will _________________.
c. All else being equal, as total fixed costs increase, the contribution margin per unit will ________________.
d. All else being equal, as sales volume increases, total fixed costs will _______________.
e. All else being equal, as sales volume increases, total variable costs will _____________.
Problem 3:
A manager is considering a special project. Corporate policy dictates that all special projects must generate an after-tax profit of $21,000. If the company expects costs related to the project to be equal to $43,000, what is the before-tax cash sales price that should be charged in order to adhere to corporate policy assuming the company has a tax rate of 30%?