The White Corporation sells only one product. The following is budgeted information for that product: Annual production
Question:
The White Corporation sells only one product. The following is budgeted information for that product:
Annual production and sales capacity (units) | 100,000 |
Budgeted selling price | $160 per unit |
Variable cost of goods sold | $64 per unit |
Fixed manufacturing costs | $2,000,000 |
Variable selling and administrative costs | $26 per unit |
Fixed selling and administrative costs | $1,500,000 |
How many units does White need to sell to breakeven?
How much revenue does White need to generate to breakeven?
How many units does White need to sell to earn an operating profit (before taxes) of $1,610,000?
Assume that $500,000 of the $2,000,000 in fixed manufacturing costs is rental on a piece of equipment. The owner of the equipment approaches White with the idea to eliminate the $500,000 payment and replace it with a charge of $8 per unit produced. Should White do this? As part of your answer, be sure to discuss the strengths and weaknesses of this change.