Refer to Porterville Steel Parts in E7-51B. The owner feels like he’s in a giant squeeze play: The automotive manufacturers are demanding lower prices, and the steel producers have increased raw material costs. Porterville contribution margin has shrunk to 45% of revenues. Porterville monthly operating income, prior to these pressures, was \($37,500\)

Requirements

1. To maintain this same level of profit, what sales volume (in sales revenue) must Porterville now achieve?

2. Porterville believes that monthly sales revenue will only go as high as \($1,050,000\). He is thinking about moving operations overseas to cut fixed costs. If monthly sales are \($1,050,000\), by how much will he need to cut fixed costs to maintain his prior profit level of \($37,500\) per month?

Data From E7-51B:-

Porterville Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of \($750,000\) and a contribution margin of 75% of revenues.

• Compute Porterville Steel Parts’ monthly breakeven sales in dollars.
• Project operating income (or loss) if revenues are \($550,000\) and if they are \($1,050,000\).