Reference no: EM13756714

Product at the Jennings Company enjoyed reasonable sales volumes, but its contributions to profit were disappointing. Last year 14,500 units were produced and sold. The selling price is $22.00 per unit, the variable costs is $15.00 per unit, and the fixed cost is $140,000.

What is the break-even quantity for this product? Use both graphic and algebriac approach.

The break-even quantity according to the algebriac approach is ____ and the graphic approach is

b. If sales were not expected to increase, by how much would Jennings have to reduce their variable cost to break even? The variable cost would have to be reduced from $....to $.. per unit.

c. Jennings believes that a $1 reduction in price will increase sales by 50%. Is this enough for Jennings to break even? if not, by how much would sales have to increase?

The sales have to be increased by at least....%

d. Jennings is considering ways to either stimulate sales volume or decrease sales cost. Management believes that either sales can be increased by 35% or that variable cost can be reduced to 85% of its current level. Which alternative leads to higher contributions to profits, assuming that each is equally costly to implement. (Hint: Calculate profits for both alternatives and identify the one having the greatest profits.)

The profit according to alternative 1 (increase in sales) is $....The profit according to alternative 2 (Cost reduction) is $...Thus, alternative 2 (Cost reduction) ......leads to higher profits

e. What is the % change in the per unit profit contribution generated by each alternative in part (d).

The percentage change for alternative 1 (Increase in sales) is ...%. The percentage change for alternative 2 (Cost reduction) is ....%