Wolf Broadcasting operated at the break-even point of $2,250,000 during Year 1 while incurring fixed costs of
Question:
Wolf Broadcasting operated at the break-even point of $2,250,000 during Year 1 while incurring fixed costs of $1,000,000. Management is considering two alternatives to reduce the break-even level. Alternative A trims fixed costs by $200,000 annually with no change in variable cost per unit; doing so, however, will reduce the quality of the product and result in a 10 percent decrease in selling price, but no change in the number of units sold. Alternative B substitutes automated equipment for certain operations now performed manually. Alternative B will result in an annual increase of $300,000 in fixed costs but a 5 percent decrease in variable costs per barrel produced, with no change in product quality, selling price, or sales volume.
a. What was the total contribution margin (contribution margin per unit times number of units sold) during Year 1?
b. What is the break-even point in sales dollars under alternative A?
c. What is the break-even point in sales dollars under alternative B?
d. What should the company do?
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
a Variable Costs Revenues Fixed Costs 2250000 1000000 1250000 Total Contribution Margin Revenues Var...View the full answer
Managerial Accounting An Introduction to Concepts Methods and Uses
ISBN: 978-0324639766
10th Edition
Authors: Michael W. Maher, Clyde P. Stickney, Roman L. Weil
