Reference no: EM132693906

Joanna is looking at her business numbers and making a plan for next year. She feels like her sales margins are too small, but drastic price increases may severely impact her sales volume. Sales totaled 80,000 units this year, resulting in net sales revenue of $320,000. Joanna feels that a $0.25 per unit price increase won't impact sales, but a $0.50 increase will cause a 20% volume drop. Hence, she is leaning towards only increasing prices by $0.25. She is planning to invest in new equipment (annual lease expense of $20,000), which will reduce her production costs for each unit manufactured. This year, the unit cost was $2, and Joanna is confident that it will drop by 25% next year.

Problem 1: Discuss Joanna's business strategy in detail and its impact on the business's Cost-Volume-Profit graph (how will it change next year). Include any questions you might want to ask Joanna and why they are relevant/helpful to your analysis.