Problem: Cost Volume Profit Analysis - Excellent Textbook Company
Excellent Text Book Company produces an accounting text that is used by many universities andcolleges. The firm sells the book to bookstores at the price of $43.50 each. The costs of manufacturingand marketing the text at the company's normal volume of 3,000 units per month are as follows:Unit manufacturing costs:Variable materials $5.50Variable labour 8.25Variable overhead 4.20Fixed overhead 6.60Total unit manufacturing costs $24.55Unit marketing cost:Variable 2.75Fixed 7.70Total unit marketing costs 10.45Total unit costs $35.00
Required:
a. What is the break-even volume in units? In sales dollars?
b. Market research indicates that monthly volume could increase to 3,500 units, which is well within production capacity limitations, if the price were cut from $43.50 to $38.50 per unit. Would yourecommend that this action be taken? Support your response by showing your calculations.