Question

I have a question on an excercise from Cost Management, Blocher,, 7 ed. book.

You are currently trying to decide between two cost structures for your business: one that has a greater proportion of short-term fixed costs and another that is more heavily weighted to variable costs. Estimated revenue and cost data for each alternative are as follows:

	Cost Structure
	Alternative #1			Alternative #2
Selling price per unit	$	50		$	50
Variable cost per unit		35			30
Short-term fixed costs/year		40,000			45,000

Required:

1.	What sales volume, in units, is needed for the total costs in each cost-structure alternative to be the same?     1000

    

2.	Suppose your profit goal for the coming year is 10% of sales (i.e., operating profit ÷ sales = 10%). What sales level in units is needed under each alternative to achieve this goal?

      

3.	Suppose again that your profit goal for the coming year is 10% of sales. What sales volume in dollars is needed under each alternative to achieve this goal?

      

Answer 1