Task: Two companies are rivals in the buggy whip industry. Their manufacturing profiles are as follows:
Co. A Co. B
Unit Selling Price $ 300.00 $ 300.00
Manufacturing Cost/unit 50.0% 66.7%
Staff Salaries & Benefits 150,000 75,000
Advertising 50,000 25,000
Depreciation 40,000 15,000
Interest Cost 50,000 15,000
Other Fixed Costs 25,000 10,000
Question 1. What is the breakeven unit sales for each company?
Question 2. Company A has an investor that will pay off all of its debt and purchase equipment that will lower manufacturing costs by 10%. What is the new breakeven point for Company A? (no change to depreciation.)
Question 3. What else can Company A do to lower its breakeven point to match that of Company B?