# Cost structure

You are currently trying to decide between two cost structures for your business: one with a greater proportion of short-term fixed costs and another more heavily weighted to variable costs. Estimated revenue and cost data for each alternative are as follows:

Required:

1. What sales volume, in units, is needed for the total costs in each cost-structure alternative to be the same?

2. Suppose your profit goal for the coming year is 5% of sales (i. E., operating profit/sales = 5%). What is the sales level in units needed under each alternative to achieve this goal?

3. Suppose again that your profit goal for the coming year is 5% of sales. What is sales volume in dollars needed under each alternative to achieve this goal?

Cost Structure: | Selling price per unit | Variable cost per unit | Short-term fixed costs per year |
---|---|---|---|

Alternative 1 | 100 | 75 | 60000 |

Alternative 2 | 100 | 70 | 65000 |

Required:

1. What sales volume, in units, is needed for the total costs in each cost-structure alternative to be the same?

2. Suppose your profit goal for the coming year is 5% of sales (i. E., operating profit/sales = 5%). What is the sales level in units needed under each alternative to achieve this goal?

3. Suppose again that your profit goal for the coming year is 5% of sales. What is sales volume in dollars needed under each alternative to achieve this goal?

### Correct answer:

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#### You need to know the following knowledge to solve this word math problem:

**algebra**- equation
- expression of a variable from the formula
**arithmetic**- rounding
**basic functions**- percentages
- reason

#### Units of physical quantities:

#### Grade of the word problem:

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