Herzog Industries sells two electrical components with the following characteristics. Fixed costs for the company are $200,000 per year.
|
XL-709
|
CD-918
|
|
Sales price
|
$10.00
|
$25.00
|
|
Variable cost
|
6.00
|
17.00
|
|
Sales volume
|
40,000 units
|
60,000 units
|
Required
- How many units of each product must Herzog Industries sell in order to break even?
- Herzog"s vice president of sales has determined that due to market changes, the sales price of component XL-709 can be increased to $14.00 with no impact on sales volume. What will be Herzog"s new breakeven point in units?
- Returning to the original information, Herzog"s vice president of marketing believes that spending $60,000 on a new advertising campaign will increase sales of component CD-918 to 80,000 units, without affecting the sales of product XL-709. How many units of each product must Herzog sell to break even under this new scenario?
- The market changes referred to in part (b) indicate additional overall demand for component XL-709. Herzog"s vice president of marketing believes that if the company spends $60,000 to advertise component XL-709 rather than CD-918, as planned in part (c), the company will be able to sell a total of 50,000 units of XL-709 at the new price of $14.00. If the company must choose to advertise only one component, which component should receive the additional $60,000 in advertising?