Refer to Vair’s Steel Parts in E7-21A. Vair feels like he is in a giant squeeze play: The auto- motive manufacturers are demanding lower prices, and the steel producers have increased raw material costs. Vair’s contribution margin has shrunk to 50% of revenues. Vair’s monthly operating income, prior to these pressures, was $200,000.
1. To maintain this same level of profit, what sales volume (in sales revenue) must Vair now achieve?
2. Vair believes that his monthly sales revenue will go only as high as $1,000,000. He is thinking about moving operations overseas to cut fixed costs. If monthly sales are $1,000,000, by how much will he need to cut fixed costs to maintain his prior profit level of $200,000 per month?

  • CreatedApril 30, 2015
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