Managerial/Cost Accounting - Variable/Fixed Cost, CVP
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X company manufactures and sells oil filters. The selling price for theses oil filters is $3.00, which is what Y company competitors charge, as the oil filter is a commodity. Facts for X company are as follows:
X company desires a 10 percent return on its total assets which are $1,000,000
X has a current sales volume of 250,000 units
Variable cost are $1.50 per unit, $1.20 for manufacturing and $0.30 for marketing and administrative costs.
Fixed costs are #325,000
a) Can X company achieve its desired profit?
b) Supposes that X company follows a strategy of one of its competitors which is to spend $75,000 on advertising so that there is more brand awareness. This would permit them to raise the selling price to $3.50 but their sales volume would decrease to 225,000 units. Will X company achieve its desired profit?
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Solution Summary
The solution performs CVP analysis with the given information.
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