APPLY THE CONCEPTS: Effect of Changes to Sales Price, Variable Costs and Fixed Costs

Now consider each of the following scenarios for Brooks Products. Calculate the contribution margin (CM) per unit, rounded to nearest dollar, and the new break-even point in units, rounded to the nearest whole unit, for each scenario separately.

Scenario 1 Brooks has been experiencing quality problems with a materials supplier. Changing suppliers will improve the quality of the product but will cause direct materials costs to increase by $1 per unit. CM per unit: $______ Break-even units: ______ units

Scenario 2 Brooks will dispose of a machine in the factory. The depreciation on that equipment is $500 per month. $CM per unit: $_____ Break-even units:_____units

Scenario 3 After some extensive market research, Brooks has determined that a sales price increase of $2 per unit will not affect the sales volume and will be effective immediately. CM per unit: $_____ Break-even units:_____

Calculator APPLY THE CONCEPTS: The Profit-Volume Graph A profit-volume graph helps managers to visualize the relationship between prof construct the profit-volume graph below. The purple points (diamond symbols) the red points (cross symbols). The operating profit is the area bounded by the Choose the correct profit-volume graph for Brooks Products A V PROFIT (Dollars) 10000 Oper. Profit Area 7500 5000 Oper. Loss Area 2500 Profit Line 2500 5000 7500 -10000 200 400 600 809 A. UNITS OF SALES Clear All Help