Reference no: EM132610128

Cheaney Manufacturing produces a single product that sells for $200. Variable costs per unit equal $50. The company expects total fixed costs to be $120,000 for the next month at the projected sales level of 2,000 units. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.

Required:

Question (a) What is the current breakeven point in terms of number of units?

Question (b) Suppose that management believes that a $24,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by how much to justify this additional expenditure?

Question (c) Suppose that management believes that a 20% reduction in the selling price will result in a 20% increase in sales. If this proposed reduction in selling price is implemented, state how much will the operating income increase, decrease or remain constant.