Daly Company has determined the number of units of Product Y that Daly would have to sell to break even. However, Daly would like to attain a profit of 20% on sales of Product Y.
Required:
(1) Explain how cost-volume-profit analysis can be used to determine the number of units of Product Y that Daly would have to sell to attain a 20% profit on sales.
(2) If variable cost per unit increases as a percentage of the sales price, how will that affect the number of units of Product Y that Daly would have to sell to break even? Explain why.
(3) Identify the limitations of cost-volume-profit analysis in managerial decision making.