Question details

Management is considering increasing the quality of its units by
$ 15.00

Zaldor Corporation sells a specialized speaker and has the following information for the current year:

 

 Total  

Per Unit

Percent of Sales

  Sales (25,000 units)

                1,250,000  

50

100%

  Variable expenses

                   750,000  

30

? %

  Contribution margin

                   500,000  

20

? %

  Fixed expenses

                   400,000  

 

 

  Net operating income

                   100,000  

 

 

Required:

  1. Calculate the variable expense ratio
  2. Calculate the contribution margin ratio
  3. Calculate break even sales in units
  4. Calculate break even sales in dollars
  5. How many units must be sold to make a profit of $250,000?

Management is considering increasing the quality of its units by spending $3 more per unit in variable costs and adding a quality inspector for an additional $40,000 annual fixed cost. Management believes this change will increase unit sales by 20% at the same price.

  1. Calculate the new profit or loss if the changes are implemented.
  2. Would you recommend management make the changes?  Why or why not?

You should use an Excel spreadsheet for your answers.

Available solutions