Question

1. Derby Phones is considering the introduction of a new model of headphones with the following price and cost characteristics:

Sales price	$	19	per unit
Variable costs		6	per unit
Fixed costs		20,000	per month

Assume that the projected number of units sold for the month is 6,000. Consider requirements (b), (c), and (d) independently of each other.

Required:

a. What will the operating profit be?

b. What is the impact on operating profit if the sales price decreases by 10 percent? Increases by 20 percent? (Do not round intermediate calculations.)

c. What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent? (Do not round intermediate calculations.)

d. Suppose that fixed costs for the year are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much? (Do not round intermediate calculations.)

2. On-the-Go, Inc., produces two models of traveling cases for laptop computers: the Programmer and the Executive. The bags have the following characteristics:

	Programmer			Executive
Selling price per bag	$	60		$	100
Variable cost per bag	$	20		$	40
Expected sales (bags) per year		7,000			10,500

The total fixed costs per year for the company are $667,000.

Required:

a. What is the anticipated level of profits for the expected sales volumes?

b. Assuming that the product mix is the same at the break-even point, compute the break-even point. (Round your final answer up to the nearest whole unit.)

c. If the product sales mix were to change to nine Programmer-style bags for each Executive-style bag, what would be the new break-even volume for On-the-Go? (Round your final answer up to the nearest whole unit.)

Answer 1