Kaizer Plastics produces a variety of plastic items forpackaging and distribution. One item, container #145, has hada low contribution to profi ts. Last year, 20,000 units of container#145 were produced and sold. Th e selling price of the containerwas $20 per unit, with a variable cost of $18 per unit and a fi xedcost of $70,000 per year.(a) What is the break-even quantity for this product? Useboth graphic and algebraic methods to get your answer. (b) Th e company is currently considering ways to improveprofi tability by either stimulating sales volumes orreducing variable costs. Management believes thatsales can be increased by 35 percent of their currentlevel or that variable cost can be reduced to 90 percentof their current level. Assuming all other costs equal,identify which alternative would lead to a higher profi tcontribution.
Kaizer Plastics produces a variety of plastic items for
packaging and distribution. One item, container #145, has had
a low contribution to profi ts. Last year, 20,000 units of container
#145 were produced and sold. Th e selling price of the container
was $20 per unit, with a variable cost of $18 per unit and a fi xed
cost of $70,000 per year.
(a) What is the break-even quantity for this product? Use
both graphic and algebraic methods to get your answer.
(b) Th e company is currently considering ways to improve
profi tability by either stimulating sales volumes or
reducing variable costs. Management believes that
sales can be increased by 35 percent of their current
level or that variable cost can be reduced to 90 percent
of their current level. Assuming all other costs equal,
identify which alternative would lead to a higher profi t
contribution.
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