Reference no: EM132502430

ABC, Inc. manufactures three products: A, B, and C. Relevant data:

           Unit                                   Unit

       Sales price                    Var Cost                   Sales in units

A             100                      50                         7,000

B                 150                  90                          2,000

C                  200                 90                         1,000

• Fixed costs are $500,000.

Required:

Question a) What is the amount of profit at this sales volume?

Question b) What is the breakeven point (in sales dollars and units per product) at this sales mix?

Question c) What sales volume in dollars must be achieved to earn a profit of $200,000? How many units of Product C will be sold at this volume? (Assume constant sales mix)

Question d) Marketing department believes that a $10,000 promotional campaign for either B or C could result in a 20% one-time increase in sales for that product. Which product, if any, should be chosen? Explain.

Question e) Engineering department believes that acquiring new equipment for the Product A production line would reduct variable cost to $35/unit. This would allow the price to be cut to $90, resulting in sales of 8,000 units per year. Fixed costs would increase by $50,000/year. Sales of B and C would remain the same. Would this plan increase profits? Explain.