In the dynamic landscape of manufacturing and sales, Caribann is a company with the potential to produce 100,000 units of its sole product annually. Caribann's interplay of costs and production capacity prompts an analysis that will guide it in navigating the balance between revenue generation and cost management. As we examine Caribann's scenario, critical financial data emerges, laying the foundation for strategic decision-making. The following information is available: Selling price - -----------------------------------------------------$42 per unit Variable manufacturing costs -----------------------------------$24 per unit Fixed manufacturing costs---------------------------------------$360,000 annually Fixed marketing and administrative costs ---------------------$240,000 annually
In the dynamic landscape of manufacturing and sales, Caribann is a company with the
potential to produce 100,000 units of its sole product annually. Caribann's interplay of costs
and production capacity prompts an analysis that will guide it in navigating the balance
between revenue generation and cost management. As we examine Caribann's scenario,
critical financial data emerges, laying the foundation for strategic decision-making.
The following information is available:
Selling price - -----------------------------------------------------$42 per unit
Variable
Fixed manufacturing costs---------------------------------------$360,000 annually
Fixed marketing and administrative costs ---------------------$240,000 annually
Variable marketing and administrative costs -----------------$4 per unit
Required:
1) Calculate breakeven point in units.
2) Compute the quantity of units which need to be sold to earn a target annual profit of
$120,000
3) In attempting to achieve better results in the marketplace, management has been looking at
changing the reward system for marketing, distribution and sales personnel. This would result
in an increase in variable marketing and administrative costs by $2 per unit, and would
reduce fixed marketing and distribution costs by $100,000:
a) Calculate the number of units required to breakeven if management implemented
the changes
b) Would you suggest that management pursue the changes? Explain
4) By reference to the above data:
How can a company effectively use CPV (Cost-Volume-Profit) analysis to make strategic
decisions about its product pricing and production levels?
Step by step
Solved in 5 steps
| 3c). By reference to above data, how can a company effectively use CVP analysis to make | ||
|
strategic decisions about product pricing and product levels.?
|
by Bartleby Expert
