Americas Company has a plant capacity of 100,000 units per year, but its bud get for this year indicates that only 60,000 units will be produced and sold. The entire budget for this year follows.

1. Given the budgeted selling price and cost data, how many units would Americas have to sell to break even?
2. Market research indicates that if Americas were to drop its selling price to $3.70 per unit, it could sell 100,000 units. Would you recommend the drop in price? What would the new operating income or lossbe?

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Sales (60,000 units at $3.75) Less cost of goods produced (based on production of 60,000 units): $225,000 Direct materials (variable) Direct labor (variable) Variable overhead costs Fixed overhead costs Total cost of goods produced 60,000 30,000 45,000 75,000 210,000 S 15,000 Gross margin Less selling and administrative expenses: Selling (fixed) Administrative (fixed) Total selling and administrative expenses $24,000 36,000 60,000 (45,000) Operating income (loss)