Tocchet Company manufactures CB1, a citizens’ band radio that is sold mainly to truck drivers. The company’s plant in Camden has an annual capacity of 75,000 units. Tocchet currently sells 60,000 units at a selling price of $148. It has the following cost structure:
Variable manufacturing costs per unit ....... $63
Fixed manufacturing costs .............. $1,012,000
Variable marketing and distribution costs per unit .... $15
Fixed marketing and distribution costs ....... $ 780,000
1. Calculate the breakeven volume in units and in dollars.
2. The marketing department indicates that decreasing the selling price to $140 would stimulate sales to 70,000 units. This strategy will require Tocchet to increase its fixed costs, although variable costs per unit will remain the same as before. What is the maximum increase in fixed costs for which Tocchet will find it worthwhile to reduce the selling price?
3. The manufacturing department proposes changes in the manufacturing process to add new features to the CB1 product. These changes will increase fixed manufacturing costs by $150,000 and variable manufacturing costs per unit by $3.20. At its current sales quantity of 60,000 units, what is the minimum selling price above which Tocchet will find it worthwhile to add these new features?

  • CreatedJuly 31, 2015
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