Adelais Inc. sells brand A. The variable cost per unit is $16, and the contribution margin is
Question:
The size of market where brand A is sold is 20,000,000 units. Currently A sells 3,000,000 units. The variable costs change based on the sales volume. If the sales are less or equal to 2,800,000 units, the variable cost per unit is $16. If the sales are between 2,800,001 and 5,000,000 units, the variable cost per unit is $15. If the sales go above 5,000,000 units, the variable cost per unit drops to $14.
3.1
What is the BEP in units?
What is the necessary market share for A to break even?
What is the profit?
3.2
Adelais is considering two different strategies. In the first one, they want to hire 4 salespeople. Each one will receive a salary of $50,000 a year. They will also get paid with a commission of 15% of sales. The sales are expected to increase by 50%.
What is the new BEP in units?
What is the annual profit?
3.3
The second strategy: Instead of hiring 4 salespeople, the managers of Adelais are considering a 20% price cut. The price-demand elasticity E = - 4.0.
[Reminder: E = (% change in demand)/(% of change in price)].
What is the profit?
What is the new BEP in units?
If the price-demand elasticity was unknown, calculate how high it should be in order to generate the same profits as in the case without the price cut
Introduction to Managerial Accounting
ISBN: 978-0073527079
5th edition
Authors: Peter Brewer, Ray Garrison, Eric Noreen