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Decide between two cost structures

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Reference no: EM13957746

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 $ 100   $ 100  
  Variable cost per unit   70     65  
  Short-term fixed costs/year   55,000     60,000  
Required:
1.

What sales volume, in units, is needed for the total costs in each cost-structure alternative to be the same? 
2.

Suppose your profit goal for the coming year is 5% of sales (i.e., operating profit ÷ sales = 5%). 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 5% of sales. What sales volume in dollars is needed under each alternative to achieve this goal?

Reference no: EM13957746

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