Reference no: EM132886308

Question - XYZ Corporation has calculated that it has fixed costs that consist of its lease, depreciation of its assets, executive salaries, and property taxes. Those fixed costs add up to sh 600,000. Their product is the widget. Their variable costs associated with producing the widget are raw material, factory labour, and sales commissions. Variable costs have been calculated to be sh. 280 per unit. The widget is priced at 900 each.

Required -

1. How many Widgets must this company produce to cover its total costs?

2. Suppose the Company goes for Any of these three options due to the current economic situation:

a) The economy is in a recession, it has to drop selling price by 8%.

b) To reduce the salary of one of the managers by sh. 40,000.

c) Sales commissions that account for 35% of the variable costs to be reduced by 10%.

Which Option do you think is the best and why (10 marks) NOTE: Each option to be assessed independently.