Question

Anthony Herrera, president of Retro Recreation Products, Inc., is concerned about declines that he is beginning to see in the demand for the company's line of old school logo basketballs as new competitors enter the market. At a current contribution margin of $8, the company must sell 81,250 basketballs to generate the desired $200,000 in annual operating income. Based on a recent market research report, Anthony thinks the company can expect annual sales of only 65,000 basketballs in the future.

Required
a. What is Anthony's current level of fixed expenses?
b. What is Anthony's current breakeven point?
c. If Anthony wants to maintain the current level of operating income in the future while selling only 65,000 basketballs, what contribution margin must the basketballs generate?
d. What action(s) could Anthony take to achieve this new contribution margin?
e. If Anthony wants to earn $175,000 in annual net income, how many basketballs must he sell? Assume a 30% tax rate.



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  • CreatedFebruary 21, 2014
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