Four problems with solutions

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

This preview shows page 1. Sign up to view the full content.

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
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

## 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.

Ask a homework question - tutors are online