In this project we should decide if one alternative is better or worse, using the breakeven point analysis.
You see a manufacturing company’s budgeted proﬁt statement when it expects to be operating at 75 percent of capacity:
Sales 7000units x $38 = $266 000
Direct materials $42 000
Direct label $56 000
Variable overheads $14 000
Fixed overheads $38 000
Gross profit $116 000
Fixed administrative costs $14 000
Variable advertising costs $21 000
Net profit $81 000
It has been estimated that if the selling price per unit were reduced to $34, the increased demand would utilize 90 percent of the company’s capacity without any additional advertising expenditure. You are required to find if an alternative is worthwhile.