Two companies are rivals in the buggy whip industry. Their manufacturing profiles are as follows:
Co. A Co. B
Unit Selling Price $ 300.00 $ 300.00
Manufacturing Cost/unit 50.0% 66.7%
Staff Salaries & Benefits 150,000 75,000
Advertising 50,000 25,000
Depreciation 40,000 15,000
Interest Cost 50,000 15,000
Other Fixed Costs 25,000 10,000
1. What is the breakeven unit sales for each company?
2. Company A has an investor that will pay off all of its debt and purchase equipment that will lower manufacturing costs by 10%. What is the new breakeven point for Company A? (no change to depreciation.)
3. What else can Company A do to lower its breakeven point to match that of Company B?