Reference no: EM13595165

A product at the Wagon company enjoyed reasonable sales volume, but its contributions to profits were disappointing. Last year; 17,500 units were produced and sold. The selling price is $22 per unit, variable cost per unit is $18, and Fixed cost is $80,000.

Required

1. What is the break-even quantity for this product? Use both graphic and algebraic approaches to get your answer.
2. Wagon is considering ways to either stimulate sales volumes or decrease variable costs. Management believes that sales can be increased by 30% or that Variable cost can be reduced to 85% of its current level. Which alternative leads to higher contributions to profits, assuming that each is equally costly to implement? (hint: Calculate profits for both alternatives and identify the one having the greatest profits).
3. What is the percent change in the per-unit profit contribution generated by each alternative in part (b)