Four problems with solutions

Four problems with solutions - Total Revenue = ($310,000) /...

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ABC Company has a fixed cost of $250,000 and variable cost of 45% of every sales dollar. a) Compute the breakeven point. Solution: BE point = $250,000 / (1 – 0.45) = $454,545 b) Compute the profit if total revenue exceed the breakeven point by $100,000? Solution: Profit = (100,000) x (1 – 0.45) = $55,000 c) If the company plans to spend $50,000 on a new marketing campaign, what should be the revenue for a profit of $10,000? Solution: New Fixed Cost = $250,000 + $50,000 + $ 10,000 = $310,000
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Unformatted text preview: Total Revenue = ($310,000) / ( 1 - 0.45) = $563,636 d) If because of a cost cutting program, the company is able to cut fixed cost by 10% from $250,000 and variable cost by 5%, what will be the profit if projected revenue is $550,000? Solution: New Fixed Cost = ($250,000) – (10%)($250,000 = $225,000 New variable cost = (0.45) – (5%)(0.45) = 0.4275 Profit = Total Revenue – Total Cost = $550,000 – ($225,000 + (0.4275)($500,000) = $550,000 - $438,750 = $111,250...
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This note was uploaded on 04/09/2010 for the course GSC 3600 taught by Professor Verma during the Winter '10 term at Wayne State University.

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