Warner Clothing is considering the introduction of a newbaseball cap for sales by local vendors. The company has collectedthe following price and cost characteristics:
| | | |
| Sales price | $ | 15 | per unit |
| Variable costs | | 5 | per unit |
| Fixed costs | | 50,000 | per month |
|
Required:
a. What number must Warner sell per month tobreak even?
b. What number must Warner sell per month tomake an operating profit of $34,000?
Assume that the company plans to sell 9,000 units per month.Consider requirements (b), (c), and (d)independently of each other.
Required:
a. What will be the operating profit?
b. What is the impact on operating profit ifthe sales price decreases by 10 percent? Increases by 20percent?
c. What is the impact on operating profit ifvariable costs per unit decrease by 10 percent? Increase by 20percent?
d. Suppose that fixed costs for the year are 20percent lower than projected, and variable costs per unit are 20percent higher than projected. What impact will these cost changeshave on operating profit for the year? Will profit go up? Down? Byhow much?
