Alpha Electronics Inc.

Scenario: Cost Behavior and Decision Making

Product Details:

• Product A:
  • Selling Price per Unit: $80
  • Variable Cost per Unit: $50
  • Fixed Costs: $100,000

• Product B:
  • Selling Price per Unit: $100
  • Variable Cost per Unit: $60
  • Fixed Costs: $120,000

Requirements:

1. Contribution Margin Analysis:
   • Calculate the contribution margin per unit and contribution margin ratio for Product A and Product B at Alpha Electronics Inc. Explain how these metrics can aid in determining which product to prioritize for production in the upcoming quarter.

1. Break-Even Analysis:
   • Perform a break-even analysis for both products. Determine the sales volume needed for each product to break even and discuss the implications of fixed and variable costs on profitability.

1. Cost-Volume-Profit (CVP) Sensitivity Analysis:
   • Conduct a sensitivity analysis to evaluate how changes in selling prices and variable costs affect the breakeven point and profitability of Product A and Product B. Provide recommendations based on your findings.

1. Strategic Pricing Decision:
   • Alpha Electronics Inc. is considering a 10% reduction in the selling price of Product B to boost market share. Evaluate the impact of this pricing strategy on the company's profitability, considering both short-term and long-term implications.

1. Long-Term Cost Management Strategy:

Propose a long-term cost management strategy for Alpha Electronics Inc. that focuses on reducing variable costs while maintaining or improving product quality and customer satisfaction levels.