Reference no: EM133168859
The following information is available for AKD Corporation for last month:
Sales (10,000 units x $120 per unit) $1,200,000
Variable expense (10,000 units x $80 per unit) $800,000
Contribution margin $400,000
Fixed Expenses $300,000
Operating Income $100,000
The company has no beginning or ending inventories. AKD's product is in its growth stage and is positioned as an affordable quality product. Currently, competitor's prices range from $110-$125 per unit.
Required:
a) Calculate the company's break-even point in units.
b) The marketing manager believes she can increase sales by 2,500 units by one of these 2 options:
Option 1: Increasing advertising, a fixed cost, by $15,000, or
Option 2: Decreasing sales price per unit to $115.
- Calculate the total operating income under each option above (1) and (2).
- Explain which option would you recommend from both a financial and a strategic perspective.