Johnson, Inc. projects sales for next year will be 70,000 units if the sales price is $30. At this level, unit fixed costs will be $10 while variable costs will be $700,000. The vice president of marketing advises management to reduce sales price to $25 and to undertake a national advertising campaign costing $15,000.
a.What is the break even point for the company in terms of dollars and units before giving effect to vice president's plan?
b.What is the break even point in units after giving effect to the plan?
c.The vice president believes that this plan will result in a before tax earning of $60,000. How many units must be sold to reach this earning level?
d.Create a Cost-Volume-Profit graph for the answer to part (b). Label all parts of the graph and show your work.
Please refer attached file for graphs and better clarity of tables.
Unit Fixed Cost=f=$10
Total Fixed Costs=f*Q=$700,000
Total Variable Cost=TVC=$700,000
Unit Variable Cost=V=TVC/Q=$10
Break even point=BEP=F/(P-V)= 35,000 Units
Break even Point=BEP*Price=$1,050,000
Solution describes the steps needed to calculate break even point in dollars and units after and before advertising campaign. It also creates Cost-Volume-Profit Graph.