Reference no: EM131704472

Question - Profit Planning and Sensitivity Analysis You are currently trying to decide between two cost structures for your business: one that has a greater proportion of short-term fixed costs and another that is more heavily weighted to variable costs. Estimated revenue and cost data for each alternative are as follows: Cost Structure Selling price per unit Variable cost per unit Short-term fixed costs/year Alternative #1 $ 100 85 40,000 Alternative #2 $ 100 80 45,000

Required

1. What sales volume, in units, is needed for the total costs in each cost-structure alternative to be the same?

2. Suppose your profit goal for the coming year is 5% of sales (i.e., operating profit 4 sales 5 5%). What sales level in units is needed under each alternative to achieve this goal?

3. Suppose again that your profit goal for the coming year is 5% of sales. What sales volume in dollars is needed under each alternative to achieve this goal?