14 Oct Profit Analysis
Cost-Volume-Profit Analysis
Trimble Company sells an electronic toy for $40. The variable cost is $24 per unit and the fixed cost is $32,000 per year. Management is considering the following changes:
Alternative #1
Lease a new packaging machine for $4,000 per year, which will reduce variable cost by $1 per unit.
Alternative #2
Increase selling price 10 percent to counteract an expected 25 percent increase in fixed cost.
Alternative #3
Reduce fixed cost by 25 percent by moving to a lower rent location. This would have the effect of increasing variable costs by 10 percent.
Required:
Consider and answer each of the following questions independently:
Round calculations to the nearest unit
(a) Determine the current break-even point in units and dollars.
2,000 units; $80,000
(b) Determine the expected profit assuming alternative #1 and sales of 3,200 units.
$22,400
(c) Determine the break-even point in units and dollars assuming alternative #2.
2,000 units; ~ $88,000
(d) Determine the break-even point required in units and dollars assuming alternative #3.
~ 1,765 units; ~ $70,588
(e) Determine the volume of sales required to earn $23,600 assuming alternative #3.
3,500 units or $140,000
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