Refer to Grover’s Steel Parts in E7- 23A. Grover feels like he’s in a giant squeeze play: The automotive manufacturers are demanding lower prices, and the steel producers have in-creased raw material costs. Grover’s contribution margin has shrunk to 40% of revenues. The company’s monthly operating income, prior to these pressures, was $ 77,000.

1. To maintain this same level of profit, what sales volume (in sales revenue) must Grover now achieve?
2. Grover believes that his monthly sales revenue will go only as high as $ 1,010,000. He is thinking about moving operations overseas to cut fixed costs. If monthly sales are $ 1,010,000, by how much will he need to cut fixed costs to maintain his prior profit level of $ 77,000 per month?

  • CreatedAugust 27, 2014
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