Question:
Basic Decision Analysis Using CVP
Balance, Inc., is considering the introduction of a new energy snack with the following price and cost characteristics:
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Sales price
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$ 1.00 per unit
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Variable costs
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0.20 per unit
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Fixed costs
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400,000 per month
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Assume that the company plans to sell 700,000 units per month. Consider requirements ( b ), ( c ), and ( d ) independently of each other.
Required
a. What will be the operating profit t?
b. What is the impact on operating profit t if the sales price decreases by 10 percent? Increases by 20 percent?
c. What is the impact on operating profit t if variable costs per unit decrease by 10 percent? Increase by 20 percent?
d. Suppose that fixed costs for the year are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit t for the year? Will profit t go up? Down? By how much?