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- A company has variable costs of $22.50, total fixed costs of $21,700,000 and plans to sell its product for $38.00. In 2015 it sold 2,200,000 units of product.
Required: a) breakeven in units and dollars; b) assume management wants to earn $15,000,000 in operating income, how many units must be sold; c) assume income tax rates are 35% of pre-tax income and management wants to earn $13,000,000 after tax- how many units are required; d) for 2015 what is the margin of safety in dollars and percentage; e) what is the operating leverage in 2015; the production manager wants to automate production and lower variable costs by $2 per unit and spend an additional $4,000,000 fixed costs per year- is this a good idea?
The sales manager wants to drop prices by $2 per unit and spend an added $300,000 on advertising, while volume increase by 150,000 units- is this a good idea?
