Reference no: EM132498115

Tom is now concerned with his profit margin on certain products and is trying to decide whether or not he can afford to offer discounts or whether he should raise his prices on these products.

Here are the facts:

GAAP Guide:

1. Tom has been selling the GAAP Guide for $110.
2. Material and labor costs directly associated with the production of the GAAP Guide are $37, these costs are considered variable.

GAAP Guide with Codification and CD:

1. The GAAP Guide with Codification Codes and CD sells for $120
2. Material and labor costs directly associated with the GAAP Guide with Codification Codes and CD are $70, these costs are considered variable.

Fixed Costs and Target Profit:

1. Total fixed costs are $100,000 and should be allocated to each product based on the sales information below.
2. Tom would like to earn at least $50,000 per month from the profit on the GAAP Guides (this should also be allocated based on sales percentages of each product to total sales of the two products)

Current Sales Data:

Description

Sales in units

% of total

GAAP Guide                                                            1,200

GAAP Guide with Codification Codes & CD                       800

Total                                                                     2,000

100%

Question 1: Determine whether Tom can afford to offer discounts on each of the products using breakeven/cost volume profit analysis. You must show the breakeven amount for each product and the amount of sales of each product to reach the target profit. Be sure to make a conclusion on your spreadsheet as to whether Tom can offer discounts on the products. You must use an excel spreadsheet to support your conclusions.