Reference no: EM132804357
Question - Part I - Dimark produces and sells a product as follows: Per Unit
Selling price $75
Production - Variable $18
Selling and Admin - Variable $ 7
Fixed - Production Expenses $2,000,000
Selling & Admin $ 800,000
Dimark recently produced 70,000 units of this product, and generated sales revenue of $5,250,000. Management is in the process of studying the dollar impact of various transactions and events, and desires answers to the following questions:
Required -
1. Determine the break-even in units, and in dollars
2. Determine the margin of safety
Part II -
1. The company anticipates a $2 increase in the variable cost per unit. All other things being equal, if management desires to keep the firm's current break-even point, what must happen to Dimark's selling price? If selling price remains constant, what must happen to the firm's total fixed costs?
Part III - The company has added a second product as follows:
Selling price $60
Production - Variable $15
Selling and Admin - Variable $ 5
As a result of adding the new line, the company has increased fixed costs for the company as a whole by $700,000 to $3,500,000
The company expects to sell 50,000 of the new product and sales of the first product will be reduced to 55,000 units.
Determine the profit from this decision, and advise management whether they should go ahead with this action.
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