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Calculate the company break-even point in units

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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.

  1. Calculate the total operating income under each option above (1) and (2).
  2. Explain which option would you recommend from both a financial and a strategic perspective.

Reference no: EM133168859

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