Refer to William’s Steel Parts in E7- 44B. William 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. William’s contribution margin has shrunk to 50% of revenues. William’s monthly operating income, prior to these pressures, was $ 196,000.
1. To maintain this same level of profit, what sales volume (in sales revenue) must William now achieve?
2. William believes that his monthly sales revenue will only go as high as $ 1,020,000. He is thinking about moving operations overseas to cut fixed costs. If monthly sales are $ 1,020,000, by how much will he need to cut fixed costs to maintain his prior profit level of $ 196,000 per month?