Which alternative to choose?

Which alternative to choose? - student project

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.

 

 

 

Vicky Nedelcheva
Accountant
Teacher