Problem
Chloe Enterprises operates a single-product entity. Data relating to the product for 2015 were as follows.
|
Annual volume
|
32 000 units
|
|
Selling price per unit
|
$60
|
|
Variable manufacturing cost per unit
|
28
|
|
Annual fixed manufacturing costs
|
120 000
|
|
Variable marketing and distribution costs per unit
|
12
|
|
Annual fixed non-manufacturing costs
|
360 000
|
Required:
a. Calculate the break-even in both dollars and units for 2015.
b. Calculate the margin of safety in both units and sales dollars.
c. Calculate the profit achieved in 2015 given the annual volume of 32 000 units..
d. Changes in marketing strategy are planned for 2016. This would increase variable marketing and distribution costs by $4 per unit, and reduce fixed non-manufacturing costs by $80 000 per year.
Calculate the units that would need to be sold in 2016 to achieve the same profit as in 2015.
e. Would you recommend the change? Explain.