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. 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 Variable marketing and administrative costs -----------------$4 per unit Required: In attempting to achieve better results in the marketplace, management has been looking at changing the reward system for marketing, distribution and
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. 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: 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:
using the information as reference, how can a company use CPV (cost-volume-profit ) analysis to make strategic decisions about its product pricing and production levels?
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